The Nasdaq has fallen 34 percent since March, and the Dow Jones Industrial Average is following suit. The decline might be only a technical correction, but the world economy may be hit because the inflow of capital into the United States may decline and restrict that country's ability to import goods from across the world.
Currently, global economic growth is based on the flow of world capital into the U.S. stock markets and the willingness of the American people to increase their consumption on the basis of this perceived wealth. Even if stock markets stabilize after a technical correction, it is still possible that the world economy could melt down, since capital flows to the U.S. are unlikely to be sustainable if markets are calm.
The East Asian crisis occurred because global demand was weak. Large-scale withdrawals of foreign capital occurred in those countries. That money then found an alternative investment opportunity in information-technology stocks in the U.S. The wealth of U.S. stockholders has risen not because the profits of companies justified such high prices the price-earnings ratios do not make sense but because too much capital was running after too few dollar-denominated IT stocks.