As you probably recall, the bad news began in the US. Subprime kicked off the credit crunch. There is some debate over whether the credit crunch and subprime debacle was a cause of the crisis, or a symptom of a deeper problem. But let’s forget about that debate for now, and just focus on the headline argument.

If this crisis is a little like Bruce Springsteen in that it was born in the USA, what is happening Stateside?

Well, the last few days have seen a raft of data coming out from across the Atlantic.

Some of it is good, some not so good, but one key headline stands above the rest. If the crisis was born in the USA, then the crisis can not end until the USA stops giving birth to it.

Alas, it seems the USA is still in labour; at least one piece of data out yesterday suggests we are in for the long haul.

According to the American Bankers Association the number of people falling behind with their loans in the first three months of 2009 hit a new all-time high.

Data goes back to the 1970s, and in June delinquencies, that is to say payments that are more than 30 days behind, hit the highest level recorded yet. In fact, no less than 3.23 per cent of all loans are 30 days or more behind.

Why so high? Well, aside from the fact that banks lent too freely in the past, US unemployment is just going up. In June US unemployment rose by a staggering 467,000, compared with a 322,000 rise the month before. US unemployment as a percentage of the work force is now 9.5 per cent – that’s a 26-year high.

Average hourly earnings were flat in the month too, so not only are workers losing their jobs, those who are hanging on in there are seeing no increase in wages.

So that’s why loan delinquencies are so high. What does it mean?

Well, it means more losses for the banks down the line. Inevitably, then, the banks will remain cautious with their lending. Businesses will be starved of the funding they need, job losses will mount and loan delinquencies will rise even further.

It is difficult to see a way out of this trap.

© Investment & Business News 2013