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Monday, August 27, 2007

US mkt face highest risk of recession


The risk of US markets falling into a recession mode is higher than ever before since the aftermath of September 11, 2001 attacks, former US Treasury secretary Larry Summers has said.

It is "premature" to say the crisis is over despite some recovery by the stock markets and the Federal Reserve last week availing more cash into credit markets, the Treasury Secretary of previous Clinton administration said on Sunday.

"We certainly saw some repair and return to normality this week. But I think it would be far premature to judge this crisis over for at least two reasons," he told ABC News.

"First, we can't yet know there aren't more shoes to drop in the financial area. There had been all kinds of securities that people had judged to be very safe that turned out to be anything but. There's a large pipeline of loans that needs to be funded," he said referring to the collapsing US housing debt market.

"Second, we haven't yet had time to observe what all is going to mean for the real economy and for the actual process of job creation in our economy.

"The consumer has been propelled by a rising housing market and by greater availability of housing credit. Those processes, the rising housing market, the greater credit taken out of their homes, are going to reverse to at least some degree," he said.

"I do not think we yet have ... a basis of making a prediction that there will be a recession, but I would say that the risks of recession are now greater than they've been any time since the period in the aftermath of 9/11," said Summers, now with the New York investment firm DE Shaw & Co.