The US Pack Of Cards Begins To Wobble
As we predicted earlier on this blog, the US stock market is finally starting to wake up to the problems in the sub-prime mortgage sector, the industry which helps to finance those with low credit ratings.
There have been some fairly sharp falls over the last couple of days, with both the UK and US markets suffering. What prompted the sudden realisation that things were not as good as many had thought?
Over the last few days we have seen a number of the larger companies in the sub-prime credit sector confirm many observer’s worst fears, with further mention of potential $1 billion bad debts. While the announcement that over 1 million US home owners are struggling to keep up with payments was bad enough, a number of the larger players are also withdrawing from the market and closing their “booksâ€.
The knock on effect to the rest of the US economy, and other worldwide markets, may take some time to filter through but if will happen. We will see an increase in the number of US houses for sale, dragging down the value of properties, and pushing more people into payment difficulties.
Large losses for some of the big players will almost certainly lead to job cuts, thereby effecting consumer spending and slowing down the economy. This will then lead to further trimming of expenses by other companies (i.e. job cuts), and the vicious circle will have begun.
There is no doubt that we are at a major crossroads for worldwide stock markets, one which so many failed to spot even though the figures were trying to talk to them.
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