No mention of the collapse of flipping? No mention of the fact that middle class types have walked away from 2, 3, 4, 5, extra houses, condos, that they failed to flip? THAT Sir, it the prime cause of the sub-prime mess.

Pete, League city, USA

Repeat after me its an insolvency crisis, not a lack of liquidity.

Thank goodness for the likes of Russ Winter, Mish Shedlock, and Calculated Risk.......

Or as the bad-guy in Die Hard would say "A product of a bankrupt culture."

Sudden Debt's analogy to the Ottoman Empire rings true!

Professor Rick, Napa Valley, California

Dear Anatole
Excellent analysis.
Can you/will you extend it out to past the US Presidential election when the President, Congress and House, as well as the US public, will have to face up to the national debt they are accumulating?
Thank you, Albert

Albert Eatock, Bracebridge, Ont, Canada

[quote]All the publicity about sub-prime mortgage defaults among America’s poorest households has created the impression that this housing slump will have a bigger-than-usual impact on consumption. The reality, as suggested by recent quite surprisingly strong consumption figures, could well be the opposite.[/quote]

Does everyone agree with this statement? Surely the sub-prime mortgage mess is not confined to "America's poorest household"?

Confused in America, Juneau, Alaska

This is an interesting article. However, consumer spending represents 70 percent of the US economy and exports make up about 15 percent. It seems very hard to imagine that a growth in exports will bail the US economy out of a downward turn.

C Thomas, Dallas, USA

I agree with the poster Oliver from Brighton.
The author forgets that American businesses are not generally export-oriented and that Small and medium-sized American businesses are clueless about consumption in foreign lands, even in Mexico.
The number of American exporters is small, compared with, say, Germany or The Netherlands or Italy. The main exporters such as Boeing, Hollywood, Microsoft and GE have their marketshare. And for the time being, America's biggest export is Debt! Live now, pay later!
The top 1/5 of Americans spend 25% of all consumer spending.

A loss of $400 b. by the banks will shrink available lending by 18 times or $7.2 trillion or the combined GDP of Russia, Mexico, Brazil, India and Saudi Arabia!! Try that one for size!!!!

Ali , Tehran, Iran

Don't US exports only account for 12% of GDP - while US consumers account for 70% of GDP? If so exports will surely have to go some to take up any slack from consumer belt-tightening?

That said - isn't this a good time for UK investors to buy the US market (say an S&P 500 tracker)? Since doesn't the current exchange rate means they are effectively buying US assets at half price? And surely that means that even if the market goes sideways they should benefit when (not if) the dollar recovers its poise?

Huw Sayer, Norwich, England

The declined of dollar is a good thing for US economy and a bad thing for Canada, Europe and particularly China. China have always refused to let float his currency and this is a good response to it.

Those like the not so brilliant president of Iran who think they are punishing the USA by attacking the dollar, are shooting in their own foot.

Jacquelin Ouellette, Montreal , Canada

the causation theory central to your analysis illustrating the negative correlation between housing cycles and net exports could be misinterpreted by the casual reader ..... housing booms, you mention, cause an increase in import demand and an appreciation of the domestic currency rates!! - to a layman, it would appear as if the cause for the appreciation of the exchange rate is caused by the decrease of net exports leaving them perplexed!! - the increase in import demand coupled with the boom in the housing sector causes interest rates to increase which cause a flight of capital inflow thereby resulting in appreciatory pressures on the domestic currency.. there will however be an offsetting factor in the exchange rate increase caused by the initial increase in imports. In my opinion, the distinction would have made your causation theory more understandable to a reader outside the economics sphere.

sagar saha, london,

You make some good points on the potential for export led growth to offset the negative impact of declining fixed residential investment. However, your analysis of the 'wealth effect' is incomplete. All American homeowners are facing falling or flat house prices so consumption wealth effects will not be restricted to low income households. This is serious as with the huge government and trade deficits the US economy is massively reliant on the consumer.

fs, UK,

Good grief. The problem is not contained to subprime mortgages and all evidence points to slower consumption.

Completely clueless analysis.

John Winter, San Francisco, CA

I largely blame Greenspan, so often praised by Mr Kaletsky in the past, for the unnecessary credit crunch by slashing the interest rate to a silly 1% and then not restoring it back to neutrality sooner. The Fed and other central bankers panicked post 9/11 which has resulted in a massively unbalanced global economy today and which will many years to rectify .

cww, suffolk,

Easily the most thought provoking analysis of the US housing situation.Next spring ,could we really be looking back and saying 'what crisis' ? Its all about probabilities, but l doubt that prospect is even in the mix !!

Tony Cox, Cheltenham,

I profoundly disagree with your first sentence "America’s housing crisis is generally agreed to be the biggest risk for the global economy and financial markets today" Why? Because the biggest risk is the continuing refusal to recognise that the so called "sub-prime" crisis has little to do with mortgages and everything to do with the oldest trick in the currency book; clipping the coinage. But this time, instead of clipping the actual coins, the national banking systems, in need of loans to back up spending beyond the capacity of tax to fund, allowed investment banks and hedge funds to "clip", not a slight part of each coin, but instead to leave but a very tiny part of each coins value, (possibly as little as 1/140th - Bank leveraged 7 X Hedge fund 20), attached to the "paper" equivalent. In so doing they knowingly debased the value of the currency, most notably the US dollar. The crisis is caused by the banks, suddenly realising that their so called CDO's were worthless - panicked!

Chris Coles, Medstead, Alton, United Kingdom

Interesting as usual but who were the individuals responsible for investing in sub-prime debt. And did they use their judgment or a tick box system?

Roger Sykes, Christchurch, New Zealand

If this were any other country other than the USA, the IMF would have been knocking at their door years ago demanding them to shape up.Still,just keep printing those dollars to pay for the trillions of debt.

Oliver, Brighton,

A somewhat romantic interpretation. A counter view might be that the lack of visibility on risk exposure is closer to Mr Khrushchev's Russia.

The wider Derivaves market continues to escape proper scruitiny. Sadly the the full answer may only become apparent when the cash runs out. Derivatives have provoked excess liquidity allowing assets to be bid up without the need generate growth. The unwinding of ecess credit will likely be very severe.

Neale Coules-Miller, Northwood,

Its true, the large, and soon to be recognized medium and small US export oriented manufacturers are soon going to be recognized as the new phenommena on the block. Since the tech/net boom busted the American consumer has been spending like crazy and now as they slow down, the business and government sectors will be spending like crazy to keep up with the rapidly growing export economy and the long put off infrastructure re-build out. Sentiment shows people selling US equity funds and buying foriegn, fleeing the dollar and buying foriegn currencies at the top. This is precisely the time new money will profit the most buying falling US assets intelligently. The constriction in credit while detrimental to the consumer will be a nonissue for the export and infrastructure manufacturers. There is well over 2 trillion dollars just sitting in money market funds collecting dust which will cancel out the 2 trillion estimate in constriction of credit if investors decide to buy the future.

Brian Stewart, Los Angeles, usa