What happens when easy credit, the lifeblood of our economy for the past few years, dries up? Consumer spending slows and people start mouthing the word “recession.”

The Washington Post says:

Easy credit has been the economy’s lifeblood in recent years. It gave people who previously couldn’t afford homes a crack at the American dream. It fueled multibillion-dollar takeovers of some of corporate America’s biggest names. It buoyed the stock market and propped up the prices of many other assets.

But now, the investors who a few months ago were willing to lend money to Wall Street at low interest rates, on loose terms, are balking as they worry about having to pay the price for lax lending standards.

The trouble started in one of the shakiest sectors of finance, home mortgages for people with bad credit, but it is spreading. As easy credit dries up, some huge corporate deals are being delayed and could unravel.

The question now is how far will the pain spread, and how many people will get hurt as it does.

“When people get scared, they tighten up all over,” said A. Gary Shilling, president of the investment firm that bears his name. He said he expects housing prices to fall significantly further. “This kills consumer spending,” he said of the credit crunch. “We think we’ll be in a recession as a result by the end of the year. And that will spread globally because U.S. consumers still are the buyers of first and last resort for the excess goods and services produced around the world.”

We love optimists.

Easy Money, Lifeblood Of Economy, Is Drying Up [Washington Post]
(Photo:Meghann Marco)

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