It used to be said that when America coughs, the whole world catches a cold. Some spin-off becomes obvious when one reads another headline and drophead in USA Today. "Woe Canada: Catching USA's Economic Chill. No. 1 trading partner among first to feel our pain." And then in The Times (London): "Europe Decline Could Be Worse Than Expected, Brussels Admits. Eurozone growth is set for sharp fall. US downturn and market turmoil blamed."

Media hype? Yes, there is always an element of that. But there is reason to believe that in this case the smoke does indicate a fire. A feature article in the Financial Times blames America's failing house sector as the chief culprit, saying that macro-economic measures were proving helpful, but that mortgage lending support was still highly inadequate.

Lawrence Summers, former U.S. secretary of the Treasury and a professor at Harvard, said: "It appears that house prices are down by 5-10 per cent from their peak, with derivatives markets predicting further declines of about 20 per cent. Price falls of this magnitude are likely to mean more than 10 m[illion] would have negative equity in their homes and more than 2 m[illion] foreclosures would take place over the next two years" (ibid., Feb. 25, 2008).

If you need help in coping with your own personal financial situation, request or download our free booklet Managing Your Finances.