Asset Management Tips

In these grim times, one of the few sources of optimism about the outlook for the US economy has been the idea that, thanks to lower interest rates, financial conditions are getting a lot easier. According to economic theory and common sense (not always the same thing), that should mean that over the next year or so — these things tend to work with a bit of a lag — demand will recover as businesses and consumers are attracted by lower interest rates to borrow more money. It is the basic assumption that is underpinning the view that, even if the economy is in recession, growth should accelerate later this year.

But what if, despite the Federal Reserve's 225-basis-point reduction in interest rates over the past five months, financial conditions are actually still getting tighter? How much further damage might there be to the economy then?

The credit crunch induced by the sub-prime mortgage debacle was supposed to be easing by now. read more