Credit crisis could affect us 'for the rest of the decade and beyond'
26 Nov 07

Many people, including myself, were convinced that the subprime credit crisis would not have long term repercussions that threaten economic growth.

But now there is more talk over how the effects of this crisis could be felt 'for the rest of the decade and beyond'.

There are several things which point to a more serious situation. First, forward looking data suggests that the housing market may be in free fall in the US, which could lead to a dramatic slowdown in consumer spending. We have just seen Black Friday in America, where shoppers have taken to the streets to start their Christmas shopping. It will be interesting to see how American shoppers will react to the recent news of doom and gloom. (I must have heard and read the words 'doom' and 'gloom' millions of times in the last few weeks - it seems to be among the favourite words of journalists!)

Second, 'it is now clear that only a small part of the financial distress that must be worked thorugh has yet been faced'.

Third, 'the capacity of the financial system to provide credit in support of new investment on the scale necessary to maintain economic expansion is in increasing doubt'.

Other dangers exist - the falling dollar, energy prices, geopolitical problems and the US's inability to act as 'importer of last resort'.

Links:
Wake up to the dangers of a deepening crisis - The FT (26 Nov 07)