Several of Wall Street's top investment banks recently slashed their forecasts for U.S. and global economic growth in a concerted manner. Morgan Stanley even warned that developed countries are "hovering dangerously close to a recession." Meanwhile, a rumor arose that European banks may face funding difficulties due to the ongoing debt crisis. The negative news jointly plunged U.S. and European stock markets, which had just enjoyed stability for less than a week, into turmoil last Thursday and caused a chain reaction in the Asia-Pacific stock markets last Friday.

Continuation of global financial crisis

The U.S. and European debt crises are more of a continuation of the 2008 global financial crisis than the beginning of a new economic crisis. Ba Shusong, deputy director of the Finance Research Institute under the State Council’s Development Research Center, said that the United States and European countries ran up huge debts in the process of dealing with the 2008 financial crisis, which laid the foundation for the ongoing debt crisis. Ba added that the 2008 financial crisis was a "panic crisis" as investors did not know the duration and impact of the crisis. The current debt crisis is a "crisis caused by systemic risk factors" as investors had foreseen the massive debt burdens of the United States and certain European countries.

Zhang Xiaojing, director of the division of macroeconomics of the Institute of Economics under the Chinese Academy of Social Sciences, said that the U.S. has increased its debt from more than 2 trillion U.S. dollars to nearly 14.3 trillion U.S. dollars in less than 20 years. The sustainability of its debt-driven economic growth model is facing unprecedented challenges. At its current pace, the U.S. debt to GDP ratio will reach the present level of Greece within three years, and the United States will have to suffer severe consequences, such as soaring interest rates, a dollar crisis and hyperinflation sometime in the future.

U.S., European crises further worsen global economic situation

When the world economy was slowly recovering after emerging from the serious international financial crisis, the successive debt crises in the United States and Europe have worsened the world’s already fragile economic situation. Furthermore, the U.S. sovereign credit rating downgrade by Standard & Poor's has led to the dramatic declines in global stock and commodity markets.

The recent U.S. economic data shows that the U.S. economy that is deeply trapped in the debt crisis still lacks growth drivers. The jobless rates in more than half of U.S. states were on the continuous rise in July, and consumption and industrial production were weak. The U.S. housing market was still in the downturn and the confidence of enterprises and investors was on the continuous decline. The negative factors affecting U.S. economic growth are continuously mounting.

The European debt crisis triggered by the Greek debt crisis is rapidly spreading to other European countries that face sovereign debt issues, such as Ireland, Portugal, Italy and Spain. According to the latest economic data, the considerable declines of the economic growth in core European countries such as the United Kingdom and France have made Europe's economic recovery almost stagnate.