The Spillover to Real Economy
So far, the crisis has mostly remained in the financial realm. Increasingly now, I see signs of the spillovers. First it is the story of people cannot get car loans and credit cards in US. The car sales figure seems to confirm that. It has fall from the sky since much of it depends on credit.
Now numerous start-ups have lay off large number of employees. They depends on funding to survive and grow. In a tight credit cycle, they may be the first affected company, and surely enough all of them are preparing for the winter. (Hopefully not a nuclear one) So what is next? Housing, car, start-up, private buy-out, M&A, and etc those credit intensive activities are already slow. Consumer spending seems have been down a lot as well, probably result of a combination of depressed wealth, loss of job, and tight credit card.
But big things haven't come yet. Firms haven't come under threat due to tight credit cycle. When we see that start happening, we are in real trouble. Buffet declared its time to buy right now, but I am just not sure how long a time horizon we must have to be profitable. It is a winter, but will it be a nuclear one?
George Liu
george.j.liu@gmail.com
