Central bankers gathering in the Swiss city of Basel are trying to tackle the impact of the US subprime mortgage crisis on world markets. ECB Chief Jean Claude Trichet said Europe must remain alert at a global level, and not be complacent.
Subprime mortgages have increasingly become an important segment of the total US mortgage market. More than one in four taken out are subprimes. They are generally sold to people with poor credit histories who are more likely to default on payments.
Japan is a casualty of the US’s problems. The Japanese economy shrank more than expected in the second quarter. There was a 0.3 percent fall, against a predicted 0.2 percent.
So instead of the expected rates rise. the Bank of Japan is now expected to keep interest rates steady.
The Japanese Chief Cabinet Secretary Kaoru Yosano says:
“ The turbulent stock prices triggered by the problems of subprime loans made it difficult to make financial forecasts. For that reason, it undermines the market sentiments. But the economic fundamentals, looking at it globally, are consistent, and to my knowledge, the Japanese economy is extremely consistent.”
Analysts say global fundamentals are still strong,and the world economy is otherwise in good condition, so this is different from the Asian crisis of the 90s.