By Scott Howard, Economist, Macroeconomics, RISI
BOSTON, MA, Nov. 20, 2008 - The global financial system has edged back from the brink of collapse thanks to aggressive, decisive, coordinated action by central banks and governments. Their efforts have, at some stages, been commendable and at others, questionable. But, we should give credit where credit is due.
There is not, however, much time to pause and admire their work. While there is some evidence that we are past the worst of the forest fire, there is plenty of smoldering underbrush that could ignite with just the right shift in the economic or financial winds.
Most of my credit crisis analysis over the past few weeks has focused on the very top of the credit market: the inter-bank lending market. This is the spring at the source of the river that keeps economic activity going. For a while lending activity at this level virtually froze. Inter-bank interest rates, represented by the 3-month dollar LIBOR, spiked as even the world's most creditworthy financial institutions didn't trust one another enough to engage in normal, everyday lending activity.
Loans and capital injections into high-level financial institutions helped unfreeze credit at the very top of the system, but will the money filter down to smaller institutions and companies that are the true drivers of economic activity?
This is an excerpt from a full story that is available in RISI's Pulp & Paper News Service.
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