No Cause to Cheer Just Yet for Financial Recovery
Letter to the Editor
Desmond Lachman | Financial Times
May 13, 2008
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Resident Fellow Desmond Lachman
Resident Fellow
Desmond Lachman
Sir, In her admirable and in-depth analysis of the current credit crisis, Gillian Tett is certainly right to identify the crucial issue as being one of "a race against time" ("The financial system needs time to gather its strength", Insight, May 9). However, one has to wonder whether she is being overly sanguine about the chances that market sentiment can be stabilised and the system can be recapitalised before fresh signs of credit deterioration emerge.

Missing from her article is the fact that the deterioration in the US housing market appears to be gathering considerable pace as evidenced by an accelerating rate of price decline, an escalating pace of foreclosures and a rising rate of unsold housing inventories.

Similarly, no mention was made of the fact that the US economy is simultaneously being hit by massive international oil and food price shocks, which will more than nullify the temporary fiscal stimulus package.

We can only pray that these shocks do not push the US into a prolonged recession that will further intensify the credit crisis once the temporary tax rebate plan fades. However, we should do so in the full knowledge that the historical international experience with housing and credit market busts would point in a very different direction.

Desmond Lachman is a resident fellow at AEI.

About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
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