The Sub Prime crisis : Impact on the real economy

(Ref: The Economist, dt. 18 August; The Financial Times, August 20)

Are the problems in the housing market affecting the real economy? Wal-Mart the bell whether of the US economy recently announced that spending by American consumers could fall in the coming months. The company gave a downward profit guidance.

As the pressure to generate liquidity increases, there have been sell offs in the oil market. Oil prices have fallen substantially from their peak of $79 per barrel reached in late July. The Economist’s metals index is 14% below the highs it reached in May.

Meanwhile, hundreds of US companies are facing significantly higher interest rates on the short term debt used to fund their day-to-day operations. Walt Disney, Heinz and Motorola are among the well known US companies which have major commercial paper borrowings. So far, however, the higher end of the CP market featuring issuers such as GE, IBM and AT&T, with higher credit ratings has been spared. The yields of these blue chips seem to be stable, at least for the time being.