Wednesday, January 30, 2008

US recession will dwarf dotcom crash

By Edmund Conway, Economics Editor in Davos
Last Updated: 11:48pm GMT 29/01/2008

The recession facing the United States is of a scale that dwarfs the dotcom slump.

  • The latest news and analysis of the credit crisis
  • Stock market turmoil spells trouble ahead
  • Ambrose Evans-Pritchard: Accusations the Fed panicked are rubbish
  • The slowdown will cause a damaging regulation backlash as governments attempt to compensate for the financial pain facing families. Britain faces a similar plight, though it may avoid as deep a slowdown as the US.

    Ben Bernanke
    Fed chariman Ben Bernanke will face criticism whatever he decides on rates

    The views of Stephen Roach, one of the world's leading economists, now heading the Asian wing of Morgan Stanley, would have seemed outrageous at last year's World Economic Forum.

    It is a sign of the times that they are now close to the consensus. This year's event has been dominated by discussions of the stock market slump on both sides of the Atlantic, the Federal Reserve's emergency interest rate cut and the SocGen fraud disaster.

    But underlying everything has been the silent truth that the US is facing a very possible recession, and is fast having to adapt to a far less enjoyable economic climate.

    "We have, as relatively sophisticated, well-developed economies, gotten hooked on credit as never before," said Roach, speaking about the UK and US. "If we had been running our economies the old-fashioned way, for example, where saving and consumption were funded by income, maybe we wouldn't be in this mess we are in now.

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