Wasn't quite a 'storm in a teacup' when the credit crunch came about, was it Mr Kaletsky? More of a calm before the storm or rather storms...

jollytall, Ipswich,

Nice try to make this appear better than it actually is ;)

Robert, Bratislava, Slovakia

The crux of this problem is the opaque nature of mortgage backed securities which obscures credit worthiness and bad lending, leaking significant uncertainty into the entire financial sector until they inevitably form lakes.

It is conceivable that these securities are actually now undervalued, assuming US & UK exports rise with the falling currency, fiscal and monetary expansion mitigates the slowdown in the business cycle, and the big emerging markets keep developing and expanding at pace, all helping to keep people in work and on good terms with their mortgage lenders.

It would not be the first time markets have taken an overly pessamistic view in uncertain times. I share Mr Kaletsky's view that current conditions are somewhat ambivalent and I believe a new equilibrium will be found in the not-too-distant future with sanity returning accordingly.

Ross, Aberdeen, Scotland

Robert,
IMHO the US problem isn't so much that the consumer here is "binged" on debt. Rather the Gvt is binged on debt and the balance of trade is in such a deficit. Strangely the latter could quite simply be largely reversed if US States allowed more drilling on the Continental shelf (only 15% is opened up right now). Thanks Florida, Califirnia etc! The Budget deficit is harder to fix.
Back to consumer if the level of consumer debt in the US worries you, look closer to home. UK Real Estate has ballooned far more than in the US and the UK consmer has 50% MORE debt. Add the Buy to Let syndrom and.......
Doesn't make me feel better knowing the UK has potential much deeper problems than the US. I don't like the printing of monmey in the US either, but it may have been essential to stop world markets from imploding.
At issue going fwd is that it's likely the US will now be entering economic recovery mode just as the rest of the world enters their period of slow growth....

Ian, Madison, USA

Let's see the banks reveal their aged debt before bringing out the bunting! I'd warrant the 90 day, 120 day and higher numbers don't look too clever for some of them!

Sorry, I'll want until some much more bearish people capitulate and call the bottom before I'll believe all the toxic waste has been found.

Colin Soames, London,

Dear Mr Kaletsky,
Let's hope your optimism is correct. I am more concerned.
It seems that simply printing cash to give away as a tax rebate on top of existing massive federal government and current account deficits is hardly a new policy. Surely this problem has come about because US consumers and the federal government have binged on too much debt for too long. Otherwise presumably the mortgages and other loans could be repaid and the banks would be safe. Surely this prescription will produce more inflation and not do anything to stop a recession.
The big fear has to be that the bank losses are too big to bail out via consolidation and then the Federal Reserve has little option other than to inflate the supply of money and also effectively nationalise some or all of the banks. Why has the Fed stopped publishing M3 data?
Will this become a major piece of unpleasant financial history which will be studied closely for years? The big inflation tsunami - perhaps.

R E Lambourne

Robert Lambourne, Burley, Hants

I think the problem is much too big for central banks to deal with. They presumably know this, which is why they were so timid earlier. We are talking dodgy foundations for trillions of USD, not a few billion here and there. Massive potential defaults.
The collateral for huge sums on both sides of the Atlantic appears to be so vapid that something basic will give and it will not be pleasant. We may not be able to inflate our way out of this one.
Meanwhile Brown and Darling and the BoE (not to mention US officials) give the impression of leading a dance orchestra sliding gently into the sea on the deck of an old-style steamer. You know the one.

Keep calm, everything is fine, the fundamentals are solid.

Except for the debt mountain, that is.

It will be interesting to see how this affects northern Europe, traditionally more careful with matters economic. Maybe our much vaunted financial expertise and economic management are about to be exposed for what they really are.

Colin, shrewsbury,

Not a good article...just contrarian, but with no substance as to why one should be!

Christian, London, Uk

Well argued, but I suspect the fiscal stimulus of about 1% of GDP is going to disappear into a sea of credit contraction.

Lots of Americans can no longer get a mortgage, can no longer draw down home equity, can no longer get car credit, and are having their credit card credit limits reduced. This is going to take out a huge chunk of GDP.

Added to which many businesses which rely on credit for investment and working capital are having it reduced or withdrawn completely.

For a very large number of Americans the tax rebates will replace a bit of the spending they previously financed with credit expansion. Many others will just save it out of fear for their jobs, or be compelled to use it to reduce their debts.

House prices seem certain to continue to fall and the reversing of the wealth effect is going to curtail spending that was previously financed from savings or income.

I hope you are right, but it is hard to see.

David Goldsby, Cheltenham, England

So does anyone seriously think that the deleaveraging cycle is complete ,or near to it ? Surely if it were we wouldn't have financial institutions running around like headless chickens. If I have to choose I'll go with the bond market indicators everytime as they are forward looking. As for the stock market, signals don't change everyday except for people suffering from myopia. We're in a downtrend and every decent rally to date got sold off (known as deleaveraging). Moving out of what you don't want into what you do want. Probably the last cycle of that has just started. Commodities, which is what you'd expect in cyclical terms. As banking ,retail ,real estate sectors try to stabilise they'll be doing it against a flow of liquidation from commodities/energy and agriculture.
At it's nadir all hope for investing in anything may well be gone and then you know you've found some kind of bottom. Right now people are still arguing about if this is a serious downturn so hope still abounds.

sc, Preston,

one of the biggest financial threats for decades, and economists have not the slightest idea whether this is the beginning of the rebound, or a prelude to total meltdown. Can we finally lay to rest the idea that economics is of any use whatsover? Would we have much respect for astronomers if they couldn't tell which way round the sun the earth went?

iain, oxford, uk

This idea that action by the Fed or BoE will actually achieve anything is just laughable to me.

The root of the problem is the debt mountain, plain and simple. Here you are talking trillions of dollars, not the
odd hundred billion the US Govt can take off the taxpayers.

Those with money will lose it, and those in debt will become
bankrupt. End of story.

Toby, Winchester, UK

I second Ian below, why the one line condemnation of Britain and Europe? On Britain’s part, Northern Rock was saved as was Bear Stearns, and had the government jumped in to nationalization in the first step, Times commentators would have cried foul just as much as they have over how long it took (see Cavendish article). The Bank has also injected $10bn into the money markets, swiftly launched an investigation in to the malicious speculation behind HBOS whose shares have recovered significantly as a result, unemployment figures are still falling, and retail sales are somehow up. Yet the BofE is still getting criticism for not panicking into action like the Fed. What ‘can do’ and ‘whatever it takes’ action are you suggesting from the Bank/Government?

KK, Manchester, UK

OK nice article, but what's with the last paragraph? Why leave us hanging like that. Where's the yet to be written piece on what's likely to happen in the UK and Europe?

To be continued Episode (1)

I am waiting....

Ian, Madison, USA

There has been a step change, now the Fed is doing more than just cutting rates, plus the changes that will kick in next week,and with the apparent green light being given to the quasi gov.agencies Freddis and Fannie.Maybe,just maybe the Fed is getting ahead of the game instead of fighting yesterdays battlles !!

Tony Cox, Cheltenham,

Mr Kaletsky, I think Albert Einstein appropriately summarised our problem "Not everything that counts can be counted, and not everything that can be counted counts" It seems financial journalists are as impatient to call bottoms as hedge fund managers, are you long! How about a few disclosures.?

Mark, Bangkok, THAILAND

Anatole, if your calling it all over (again) we must be in trouble!

You understand that a financial crisis can occur in either a deflationary or inflationary environment?

The Fed printing money won't stop the crisis from unfolding. If anything, an inflationary crisis would be worse than a deflationary crisis because the engineers of this crisis and those who borrowed what they couldn't afford to repay will be protected while the rest of us suffer... I think its commonly referred to as "moral hazard".

As for the "short sellers conspiracy", part of the market's job is to predict where a company's stock price is heading. While I agree actual market manipulation is problematic to the efficient functioning markets, I can't help noticing that every institution with huge gearing and zero transparency is claiming short sellers are conspiring against them.

Michael, Melbourne,

Mr. Kaletsky,
While I certainly hope you are correct about the future of the US economy, I'm not sure why you are less optimistic about Great Britain and Europe. Do legal barriers exist to the measures taken in the US, or is the problem political?

Mike Lenox, Sacramento, CA, USA

Dear Anatole: I hope you're right. Regards, Peter Adam

Peter Adam, Chevy Chase, MD