Dow loses 400 points; Italian debt issues threaten global economy; dollar steady

The Dow Jones industrial average lost almost 400 points today, its worst one day loss since last summer. The market closed down at 11,780.

Greek sovereign debt issues are still a major worry for investors, but they pale in comparison to those of Italy, which has a national economy six times greater than that of Greece. Italy's cost of borrowing -- the interest rate it would have to offer investors on a new bond issue -- reached a record 7% today. A BBC economics editor said, "No one wants to lend to a country when that country would use the loan to pay the interest on previous loans - that's throwing good money after bad." A European economist said this week that Italy needs an immediate cash infusion of 300 billion euros "just to stand still."

Greece, which already has been bailed out twice by European Union members, still owes 340 billion euros in sovereign debt. Greek leaders are trying to form a new government after this week's resignation of its prime minister. Massive austerity programs there have brought on widespread civil disobedience since last spring, which virtually shut down Athens on two occasions in recent weeks.

In Bejing today, International Monetary Fund (IMF) Managing Director Christine Lagarde said, "The global economy has entered a dangerous and uncertain phase. If we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability and a collapse in global demand. Ultimately, we could face a lost decade of low growth and high unemployment."

As the eurozone continued its spin out of control, the euro itself predictably lost ground today against the U.S. dollar. The dollar was steady against the Mexican peso, trading for 13.25 to 13.75 pesos in selected institutions. If European ministers do not find a major fix fast for Italy, watch for the dollar to rise further against the Mexican currency -- over 14 pesos is entirely possible. The dollar is typically regarded as a safe harbor in stormy international economic conditions, and investors often move to it in times of uncertainty.

Massive sovereign debt exceeding gross domestic product is responsible for the economic collapse of Greece and Italy. Greek debt is 143% of its GDP, and Italy's debt is 120% of GDP. The same kinds of crazy numbers threaten other European nations and the United States as well, where national debt is almost 100% of GDP. Read what could easily happen in the U.S.: http://mexicogulfreporter-supplement.blogspot.com/2011/11/at-edge-of-precipice.html.