THE TELEGRAPH: The triggers for 1987's Black Monday – when Wall Street fell 22.6pc in a single day – are back, writes Ambrose Evans-Pritchard
Exactly 20 years after "Black Monday" – which saw Wall Street plunge 22.6pc – economists have warned of eerie parallels with the tensions visible on global markets today.
Simon Derrick, chief currency strategist at the Bank of New York Mellon, says the collapse of the US dollar in the mid-1980s lay behind the ructions that led to Black Monday – modern times' most dramatic one-day crash. The dollar had been sliding relentlessly for two years and was at risk of breaking down in a disorderly rout, much like today.
"The dollar was under severe pressure in October 1987. Interest rates were on the rise globally, the US trade deficit remained high and energy prices had been increasing on the back of tension in the Gulf," he said. These conditions are more or less in place once again.
The price of crude oil reached an all-time high of $84 a barrel last week on news of dwindling stockpiles, while US inflation has yet to subside. The producer price index surged in September –now up 4.4pc on last year.
The dollar has fallen below parity against the Canadian dollar for the first time since 1976. The global dollar index has dropped 9pc over the last year, touching an all-time lows of 77.66.
Jim Baker, the former US Treasury Secretary, said Black Monday's trigger was an interest rate rise by Germany's Bundesbank, forcing the whole European system to raise in lockstep.
The move sparked fears that the US Federal Reserve would have to match with tightening of its own, or risk a further dollar slide and the start of an inflationary spiral. The Fed found itself hemmed in by world forces.
Economists' concern this time is that Asian and Middle East central banks and investment funds are losing their taste for US investments. This could knock away a key prop for the dollar. There is already evidence that Korea, Singapore, Taiwan, Vietnam and Qatar are drawing back. Europe is less likely to prove a trigger today. Even so, European Central Bank governors recently warned that inflation risks are rising, hinting at another rate rise. Is another Wall St crash coming? (more)
Mark Alexander
