Will the credit squeeze pinch the consumer?

One way the financial turmoil can hit the economy is through consumption. If credit dries up, debt-fuelled spending could be undermined and the property market could slow.

Nothing much changes in financial markets. In 1907, a crisis following a long period of economic expansion prompted calls for the authorities to restore order. A century on, in similar circumstances, America's Federal Reserve has duly stepped in, cutting the discount rate (at which banks can borrow from the Fed) by 0.5% to 5.75%.

By making it easier to borrow, the Fed, the traditional lender of last resort, stepped up its attempts to inject liquidity into the system, says Capital Economics. Along with other central banks, it had previously simply been adding liquidity to the interbank market, which had seized up amid uncertainty over which banks were exposed to subprime-mortgage securities. The move boosted equity markets late last week after a scramble for safety saw both the FTSE 100 and the Nikkei 225 record their biggest daily falls since September 11th 2001 5.4% and 4% respectively; UK blue-chips promptly rocketed by their highest daily tally since March 2003.

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