From Staff Reports
It’s called the “tipping point,” and it’s a term that strikes fear in the hearts of even the toughest global traders. Simply put, the tipping point is that specific place in time where there’s just too much bad news for an economic system to overcome. When that point is reached, the market "tips" into a recession. But the process is much more violent tha that sedate-sounding sentence.
Tony Meer, chief economist for the heavyweight investment bank Deutsche Bank AG (NYSE: DB), this week said the worldwide financial markets were actually in danger of “freezing up” because banks are now worried about lending out money, according to a report this week in Australia’s Herald Sun. And that could well be the straw that breaks the camel’s back, and serves as the tipping point.
“We have switched from a rational, normally functioning financial environment that would let the U.S. economy have a soft landing, to one where [the] financial markets are at risk of not working properly and a much sharper and harder landing could happen," Meer said.
Australia’s Commonwealth Bank Chief Ralph Norris warned that the liquidity squeeze could put pressure on non-bank lenders to raise interest rates on mortgages in that country by more than the quarter-point increase in the official benchmark short-term interest rate. The Australian stock market has fallen 3% or more three different times in the past two weeks as the fallout from the U.S. credit crisis spans the globe. The worry is that the U.S. economy, as the biggest consumer economy in the world, is also the largest market for exports from many countries. So a serious U.S. downturn could very quickly turn into a global rout.
Australia’s Commonwealth Bank Chief Ralph Norris warned that the liquidity squeeze could put pressure on non-bank lenders to raise interest rates on mortgages in that country by more than the quarter-point increase in the official benchmark short-term interest rate.