Gridlock News

A 9% burst in the Chinese stock market triggered a 3% drop in both the DOW and the Nasdaq in the United States today.  The US stock market also reacted the revelation of additional problematic fundamentals that included a spike in oil prices, a bombing targeted against Vice President Cheney, Alan Greenspan's warning of a potential recession and almost a dozen other problems, all at the same time.

The stock market rout points out a number of weaknesses in the economy as well as in the US electronic trading system, which suffered a partial server crash according to some reports that resulted in a backlog of orders.  Plus, it did not help calm investors that were still trying to sell off.

Details of the Dow Jones Server Problem

A Dow Jones Server responsible for calculating the Dow Jones Industrial Average got behind.  It was reporting numbers that were actually about an hour behind.  As Dow Jones started to correct the problem a major programmed Derivative trade (a sell off) came in and the DJIA dropped from a level of around 200 points dramatically down to 500 points.

Chinese Connection

Chinese has been investing a huge amount of their GDP into building up their manufacturing capability.  Many investors see this as a potential sign of trouble that could trigger a heated economy in China that could trigger Chinese inflationary concerns and a sell off on the fear of a Chinese or global recession.

The Problem

If China builds too much, both in terms of products but also in terms of production capability and the world can not consume that capacity the value of the produced goods will drop (they will be devalued in real terms).

If the Chinese government takes steps to fend off this problem, by trying to cool the economy that could help or it could hurt.  It depends on if they make the right move.