World-Wide Recession Looming???

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From: Foreign Policy Passport 

U.S. Fed Chairman Ben Bernanke’s pessimistic testimony to Congress on Thursday has caused increased handwringing around the world, with new reports questioning whether the sub-prime fallout will lead to a worldwide recession. The general consensus is no — the damage will be contained to the housing sector and hedge funds, which irresponsibly invested in sub-prime.

But what if sub-prime’s use were actually more widespread? Some mutual funds have acknowledged small investments in the funds. This isn’t a big deal, as some risk is to be expected in those vehicles. But what about money-market funds, where most personal savings are invested? They offer a low rate of return and are considered one of the safest investment. But according to a recent Bloomberg article, money-market fund managers have invested $11 billion in sub-prime, including managers at Bank of America and Morgan Stanley. In other words, about $11 billion worth of personal savings are at risk.

In the grand scheme of things, $11 billion is a drop in the bucket. But as we’ve seen over the last few months, small problems like this tend to be more widespread, so it’s likely more money-market funds will be forced to acknowledge sub-prime investments, and peoples’ savings, which are already at historic lows, could disappear. If this happens, recession would be inevitable, and depression a real possibility.

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Posted on November 11, 2007, in Economic Policy, Financial Markets, Globalism, Politics, Social Policy and tagged , , , , , , , , . Bookmark the permalink. 2 Comments.

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