Sign up to The Irish Times Archive (1859 - 2008)My Account »

CREDIT IS the lifeblood of markets and when it stops flowing to businesses and consumers, a financial crisis for banks and stock market investors quickly becomes a major problem for the real economy. No economy can function properly once credit stops circulating freely and when banks fail to perform their role as lender and borrower, businesses are starved of cash, investment is delayed or abandoned, jobs are put at risk and consumers find it harder to secure mortgages and loans.

The continuing impasse in the world’s money markets, where credit remains frozen with little business being done, has greatly increased the risk of global recession despite the efforts of policy-makers to avert it. Credit markets operate on the basis of trust and when it is lacking and fear predominates – as we are seeing – those markets can freeze up with devastating financial and economic consequences.