http://www.economist.com/finance/dis..._id=123 06060
"A cut in overall lending would be a complete reversal of trend. Morgan Stanley reckons that total American debt (ie, the gross debt of households, companies and the government) has risen inexorably since 1980 to more than 300% of GDP (see chart), higher than it was in the Depression. Consumers, in particular, were encouraged to borrow by low unemployment and interest rates and (until last year) rising asset prices. Their debt jumped from 71% of GDP in 2000 to 100% in 2007, a bigger increase in seven years than had occurred in the previous 20.
If consumers start to save more or borrow less, spending suffers. In the last three months, America has seen the weakest car sales since 1993, according to Bloomberg. A general decline in demand will cause businesses to shed jobs, creating further falls in demand and more bad debts."
http://www.economist.com/business/di...ry_id=12429604
"Since the early summer the prices of various kinds of steel have fallen by 20-70%, iron ore is down by a third and the key rate for bulk shipping of commodities such as iron ore, coal and grain is down by more than four-fifths. There is even talk of grain cargoes piling up in ports in the Americas. Their buyers? letters of credit have not been honoured, because of a lack of confidence in the banks that underwrite them. At least one Australian producer has had the same problem with iron-ore shipments. And shipowners are struggling to finance new vessels they have ordered.
The most spectacular reflection of falling activity has been the Baltic Dry Index (BDI), which traces prices for shipping bulk cargoes such as iron ore around the world from producers such as Brazil and Australia to markets in America, Europe and China. The index has plunged 86% after hitting a record high of 11,793 points in late May (see chart). It fell by 11% on October 15th alone, to its lowest level since February 2003. The BDI is a leading indicator of international trade and, by extension, of economic activity. In the past couple of years the index has been driven up by the boom in China, as the world?s fastest-growing big economy sucks in raw materials in bulk-carrying ships and pumps out finished products, which are exported in huge container vessels."
