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Subprime: the contagion effect spreads

Despite the repeated assurances by the US Federal Reserve, it seems that the global financial communities are not assured that the credit squeeze has been contained or that it is a localized problem.

Today, Bank of England and European Central Bank added to these concerns by offering to inject more liquidity in the system - a move coinciding with the reports coming in of the whopping fall of 12.% in the US demand for homes (against a predicted drop of just 2%).

Should the US economy recede into a recession, the world economies are also bound to be hit hard; for example, concerns are already being raised about the adverse impact of subprime crisis and strengthening rupee on the Indian IT sector; also, a credit squeeze will easily translate into less FDI in the infrastructure projects and thereby, further drive down the Indian economic growth.

As usual, The Economist has a nice article on how much will the credit crunch hurt the world economy? Another, interesting, viewpoint by the venerable magazine analyses whether any good can come out of a US recession.

Happy reading!


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