Credit Crunch: On To Recovery?

Jennifer Sinclair
Summary of Market Information
June 12, 2008

While some economists alternately warn of, and plead for, rising interest rates and many bank lenders seem to be retrenching and retreating from financing, the chief investment officer of one of the largest fund managers in the world, BlackRock, thinks that the worst of the credit crunch has passed.

However, in saying that “we’ve seen the worst of it in terms of crisis”, BlackRock Vice-Chairman Bob Doll admits that recovery will be slow, taking another two to four years to correct.

“There is still more to come,” said Mr Doll in Singapore recently, confessing that recovery from the bank-stability standpoint will be slow and other crises in credit card loan markets and auto loan markets, may slow growth even further.

The Federal Reserve is the hero, according to Mr Doll, with the bailout and provision for failing banks like Bear Stearns, ailing Washington Mutual (down 9.3% ), and pressurized Lehman Brothers (down 13.6%). “The point is policy-makers make bold, creative moves when the pressure is on…”, said Mr Doll, emphasizing the need for such measure to maintain the U.S. bank system.

While Mr Doll feels that the U.S. faces simple slower-than-normal economic growth, he admits that should gas prices and commodities prices continue to rise as they have, a full-blown American recession is likely.

Whether due to the end of a period of expansion or the beginning of 1970s-style stagflation, these indicators seem to be the ones to watch in assessing the future of the American economy.

Sources:
Financial Week, June 9, 2008
MSN Money, June 11, 2008