Sky News business editor Michael Wilson

Calm, calm, calm. A little bit of upward yo-yoing in the markets just to give us time to breathe. But don’t be too cheerful.

The trust has gone. The ‘credo’ – Latin for ‘I trust’ - of credit has disappeared. Such is the fear of ‘who’s next?’ that the banks are rapidly calling in their loans to each other, divesting themselves of the debt they view as dangerous. That’s bad for all of us.

The ‘what’s it mean to me?’ part of the story is harsher lending terms for mortgages – even those which are very much ‘super-prime’; huge increases in credit card interest charges; falling house prices; spending will stall; the economy will slow and unemployment will rise. Oh, and there’s a better chance of a recession. We’ll all be worse off.

I don’t think it’s necessary to be apocalyptic. I can’t remember a worse time, but it’s not the end of the world.

That said, I’m not convinced that the eagerly awaited interest rate cut by the US central bank this evening will do very much at all.

It may be seen as the right thing to do when times are getting tight, and an economy needs the stimulus of cheaper money, but each recent interest rate cut has taken value out of the dollar.

China and other major overseas investors who have bought into the American currency and are in effect holding the US economy above water.

Should they decide to dump the greenback, then it will leave a lot of Americans with a weak currency not buying anything from the rest of the world. Their own recession is therefore exported to us all.

I turned to one of the few moneymen with a  well-worn ringside ticket to the last debacle or two which have similarly heralded the end of the world in their time – Nick Parsons.

What, I wondered is the value of a widely expected, one per cent cut in the American interest rate when an $11 trillion mortgage market is at stake? ‘Not much’, he said,’ it won’t force banks to reduce rates between themselves, won’t make them lend cheaper mortgages and it won’t make them lend more to businesses.’

What’s really needed, simply put, is more money. More investment in the American economy.

This morning, the US Treasury Secretary Hank Paulson admitted that the economy was in steep decline, but that his planned ‘stimulus package’ would add another 500,000 jobs to the US this year. I wonder, after all this is over, into what sort of employment would that be?

But this is the closest we’ve come to the truth of what’s going on. In this election year, American politicians will be anxious to be seen to be doing anything to ward off the credit crunch and the curse of unemployment.  Extra money will be needed. But from where? That is the question.

Two brighter notes, though. Both behemoths due to report from Wall Street, Goldman Sachs and Lehman Brothers came in with less than tragic figures. Not enough to lift the bears, but these days, let’s be thankful.

Comments

[peterfieldman paris france 26 Mar 2008 14:18:16]

My comments on how everyone has become a hostage to the financial sector are too long. They are posted on my blog
www.pfieldman.blogspot.com

[Zac Imam,London 19 Mar 2008 18:14:58]

One wonders with all these interest rate cuts how bad their inflation is. I mean, ours is going up pretty fast and we cut it by what? 0.25% or 0.5% was it?

[Johnny Cash 19 Mar 2008 14:06:35]

If they changed the word "credit" and replaced it with the word "debit" - do you think it would have any effect?

[Elizabeth Davies Cape Town 19 Mar 2008 06:21:29]

The time has arrived when the deckchairs on the Titanic are being shuffled around. The "bad" word recession is now being spoken in high places. All this was evident months ago, back in the days when Nothern Rock hit the iceberg! Time to consolidate...yes. Take a long hard look at your debt and get your houses in order. We are just beggining to see the perfect storm in finance.

[Khalid 18 Mar 2008 19:08:33]

Sir
Thus far as my interest surrounding this latest cut, then I think you have hit the nail on the head when you mention election.
Not that those wanting to be elcetd play on voter apathy (as if?) but the one thing that drives many a household economy is the good old green garden at the back of the house.
Naturally, lenders and borrowers should be able to benefit from this latest cut, but what are the odds that it will be a long time before [Brian Wilson] passes on the [Happy Days] to those for whom the rate was cut. Still, lucky we have blue http://www.sky.com./news 24/7 with a lot of interest for all!