August 16, 2007

In recent years some analysts have begun to raise a red flag regarding the use of credit by households. The fear is that a decline in net worth or the ability to service the debt would reduce private sector spending. Another fear is that if the loan to value ratio increases above one, and lending institutions are forced to mark to market, a major credit market crisis could ensue. Depending on the nature of the response, the regulatory agencies could either improve or worsen the situation. The potential for a meltdown of the credit system is a real one.

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