(IDEX Online News) – The sharp fall at stock exchanges around the world gives the impression of a major sign of an economic crash, something that may greatly harm the diamond and jewelry industry – if it happens. At this point, it is still not clear.

 

The Friday declines at the European and Asian stock exchanges followed prolonged, if not juvenile wrangling between political foes in Washington DC, resulting in a short-term political compromise and long-term damage to confidence in the U.S. economy.

 

China's decision to lower the U.S. credit rating is testimony to that loss of confidence, followed by S&P lowering the U.S.'s AAA rating to AA+. This is a blow to the American economy.

 

It is important to remember that the U.S. economy is fundamentally healthy. The lack of confidence is in its leadership's ability to lead steadily. This is a failure of leadership.   

 

A similar criticism is leveled at Italy, which is at the eye of the current storm in Europe. In Greece, the public sector is employing a very large percentage of the total work force. How can a government cut costs if it requires mass layoffs that in turn mean less spending and larger unemployment?

 

All around the world, from Athens to New York to Tel Aviv, there is rising popular demand from governments to change priorities, be less pro-business and more pro-people.

 

Now What?

The weekend will give financial institutions a chance to consider their response, and hopefully return on Monday to cautious behavior.

 

The market declines do not necessarily spell recession. Not every stock market fall is followed by a recession.

 

It should also be remembered that S&P thought the subprime-backed securities are OK. Their current action was both predicted and viewed as an overcautious reaction.

 

Meanwhile, at the IIJS trade fair in Mumbai this week, the Friday crash is a popular topic among traders. Customers stepping in and buying large quantities of diamond jewelry interrupt the talks. In that respect, a crisis does not look eminent.

 

Jewelry commodities are stable. The softening of rough diamond prices stopped and the pause in polished diamonds is continuing. Gold is trading at $1,660-$1,670 an once, maintaining its level for now, as is silver (~$40/once). Platinum declined to $1,709.

 

Compared to most other commodities, diamond prices are stable. They are expected to remain so in future crises as they were in past ones.

 

The first step the U.S. should take is to decrease unemployment and reduce debt. It is a long road with many obstacles. However, most U.S. companies are expected to post excellent results, consumers are buying luxury items and jewelry is in growing demand. Most important, few brides will postpone their weddings – the major driver of diamond industry.

 

Barring any further downward turn, 2011 is still a good year for the diamond jewelry industry.