The twin pillars of the American economy – consumer and corporate spending – have fallen, says philip delves broughton |
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When economists start drawing comparisons with the Great Depression, it may be time for America to face up to the gravity of its economic crisis.
Not since the Great Depression have American house prices fallen at a similar clip, nearly four per cent a year. Not since the Great
Depression has the foreclosure rate been as high, with one in every 62 American households expected to foreclose by the end of this year.
Last week, it was revealed that in August, 4,000 jobs had been lost in the economy. With banks and mortgage companies now slashing staff, that number is likely to grow.
Falling house prices, provided there was job growth, was tolerable. But falling house prices and job cuts spells the death of spending by consumers and companies, the |
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Everyone from central bankers to Wall Street traders to anyone on a mortgage is on tenterhooks
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twin pillars of the US economy. After all, if you were seeing the value of your house fall, your mortgage interest payment go up and your friends getting the sack, would you be in any mood to go shopping?
The crisis is not just affecting the 'sub-prime' sector of the economy. In New York, the anecdotal evidence is piling up.
Investment banks and consulting firms are in the process of freezing their usual recruitment drives at business schools. The graduating MBA class of 2008 can expect to find a barren job market. Interior decorators report that clients are putting projects on hold as they panic about their financial future.
"You'd think the rich would behave differently," said one investment banker. "But they treat credit the same as everyone else. They buy the $10m apartment, when they should have bought the $7m one. It's the same issue, just magnified." Borrowers who should have know better than to take out an adjustable rate mortgage, whose interest rate leaps after a few years, did just that.
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