Credit Crunch: Where Do We Stand?
by: Thomas A. Russo
2008, 38 pages
Type: Occasional Paper 76
ISBN: 1-56708-140-1
Price: $20.00
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Hard copy:
In this very timely and data rich paper, Mr. Russo explains and illuminates interrelated forces that converged to create the current credit crunch. Mr. Russo looks at how US consumers, so crucial to economic growth, now find themselves increasingly levered, unnerved by a declining housing market, and unable to borrow from their homes to finance consumption. Mr. Russo then highlights the increasing signs of contagion from the MBS market, to credit cards and auto loans, as the crisis spreads and consumers begin to struggle to pay debts. As the nervousness spreads, Mr. Russo outlines the flight to quality. The paper then tackles the role of liquidity, asking whether we are in the midst of a global liquidity bubble contributing to excess valuations of certain assets. Finally, Mr. Russo comes full circle to the U.S. financial “crisis” where bank balance sheets are backing up with assets, potentially further reducing credit creation, further pinching the consumer.
