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While the Bank of England has faced the dilemma of how much funding assistance to give to the UK markets without allowing backs to benefit directly, this situation is now being replicated in Europe...
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Thursday 12th June 2008
Investors in both the UK and US were running scared yesterday as rumours rampaged through the markets that more security firms in the US will be writing down the value of their loan books when the reporting seasons starts next week. For those who have been watching the credit crunch closely, this was the reason that we saw the initial shock last year which led to the worldwide economic slowdown. So what happens if we see more write downs?
Companies operating in the money markets use their assets as collateral for loans, therefore if we see further shrinkage in the value of these assets this may well put more pressure on the money markets. If we were to see the ‘credit crunch part 2’ this would kill any chance of a short term recovery and again reduce the amount of credit available to business and consumers.
As credit is the fuel for economies around the world there are real concerns with many analysts set to reduce their economic growth forecasts for this year and next. However, in current market conditions it is easy for rumours to ‘grow legs and arms’ and take on a life of their own.
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