Credit crunch biting harder at the American Dream

22 November 2007
An American recession is looking increasingly likely and gloom shrouds the Thanksgiving Day economy amid a barrage of warnings from some of the world's leading financial experts about the effects of the global credit crisis.

Bank of England deputy governor Sir John Gieve, former chief of the US Federal Reserve Alan Greenspan, and the Organisation for Economic Cooperation and Development (OECD), have all sounded alarm bells by expressing how the financial markets are continuing to deteriorate as the credit squeeze takes a firm grip.

This pessimistic mood was exacerbated by US Treasury Secretary Henry Paulson, when he told the Wall Street Journal on Tuesday that the high numbers of house defaults in the US which have been a major contributor to the credit crisis will be "significantly bigger" in 2008.

Mr Paulson also laid blame on the lenders who not only provided large numbers of Americans that have low incomes and poor credit histories with loans they could not afford to repay, but actively sought them out in order to draw new customers. To rectify the problem and prevent it worsening further, he said that he is pressing the mortgage industry to help large groups of homeowners by allowing them to qualify for more competitive terms on their loans.

The OECD has warned that world stock markets could be on the brink of collapse as a result of the credit crisis, and Mr Greenspan said at a conference in Toronto that "progress has come to a halt". He also said that anyone who thought that financial conditions have improved are badly misguided.

Mr Gieve's comments have signalled that he is increasingly worried about the effects of the crisis on the UK economy, and some are sceptical that Britain will be able to detangle itself from the world's biggest economy in order not to go down with it.

However, despite the doom and gloom amongst economists and financial experts, there is some hope for Americans this Thanksgiving. While the sub prime mortgage crisis is currently wreaking havoc, the next 12 months could prove a good time to buy a property; in the worst housing recession in the US for 16 years, house prices in some areas have lost 20 per cent of their value, and this is expected to continue for at least another year.

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