And now, the great American car crash

As America's debt crisis spreads ever deeper into the economy, all those cars, washing machines and holidays bought for years on the never-never are becoming a colossal problem right now.

Credit markets have now tightened in almost every field as a consequence of the collapse of the market in sub-prime mortgages. Want to borrow money to buy a car? Think again. Raise that cash advance limit on your credit card? Good luck.

Since 1981, there has been only one financial quarter in which Americans spent less than they did the previous year. That was during the 1991 recession. Now economists are predicting that the first half of 2008 will see two consecutive quarters in which Americans spend less than they did in the same periods of 2007.

Earlier this month, Fitch, the credit ratings agency, said late payments on car loans are

at their highest level for 10 years. GMAC, one of the leading car loan companies, has announced it will be closing most of its north American offices due to rising losses.

For years now, Americans have grown used to buying on credit and then paying off their debts by refinancing the mortgages on their homes. This worked as long as house prices rose. But the music stopped last year. House prices are falling and many home owners are finding themselves with negative equity and unable to pay off those credit card bills.

Every day, the newspapers are filled with sob stories of supposedly low-risk borrowers, people with good, stable jobs who borrowed against their houses to pay for vacations or university tuition for their children and now find themselves mired in debt. Their adjustable mortgage rates keep re-setting upwards and the value of their homes goes down. It is a hideous spiral.

The personal savings rate in America - the share of income left after consumption - has been falling for years. In 2001, it was 12 per cent. Today, it is close to zero. Americans