Today’s the day. The Fed will be choosing the rate of interest this evening. Across the US, traders, analysts and economists are hoping, they are praying and they are willing the Fed to lower interest rates. A quarter of a per cent drop would be nice, a half a per cent fall would have them singing out in praise, but no change at all and some will want to see the Fed’s chairman Ben Bernanke sacrificed on the altar of Wall Street.

There seems to be a growing feeling that if the Fed chooses to do nothing and keeps rates at 4.75 per cent, then the good ship US will not be able to recover from the sub-prime iceberg it smashed into this year, and will experience recession.

Earlier this week we told how bad things are with the US housing market, with data from the National Association of Realtors revealing that median house prices across the US have fallen by 7.64 per cent from the June peak to September.

Yesterday, it was the Conference Board’s turn to put the fear of God up analysts, when it revealed yet another fall in its Consumer Conference Index. Actually, it was an odd kind of fall. Statisticians can be the bane of our lives, and yesterday they lived up to form when it was announced that the consumer index fell by rising. Yes, that’s right. It fell by rising. In fact the index moved from 99.5 in September, to 99.6 in October. So why do we say it fell. Statisticians, you see, have this unfortunate habit of changing their minds. The index score for October, announced yesterday, was lower than the September score announced four weeks ago. It’s just that yesterday, the Conference Board lowered its figures for September too. No doubt, they will lower the October reading again in four weeks’ time.

But what does the latest consumer confidence score mean? Well, if you ignore the fact that the index is now recorded as being higher than September’s reading, October saw the lowest score in two years. Look#133;just forget the numbers, the point is, the index has fallen rapidly since July.

US consumer conf

But the snag is that a cut in interest rates, even a half a per cent cut, may not be enough. For one thing it takes time for the effect of an interest rate cut to be felt, time which the US economy does not have. For another thing, a lot of these sub-prime loans that were offered a few years ago, were made available at such a cut-price introductory offer that rates would have to fall a lot more rapidly and significantly than the Fed would dare contemplate to make a difference.

But for a third thing, there is a chance a new problem is emerging. A new crisis could be about to hit the buffers, that will be just as serious as US sub-prime, and worryingly, the men and women of Wall Street are dismissing this as a danger for all the wrong reasons.

Consider this. US banks and other lenders were far too rash with their lending decisions relating to sub-prime. It seems unlikely anyone would disagree with that statement. If they were far too complacent with mortgage lending, is it not logical to assume those same lax attitudes permeate through the banking sectors and apply to, say, credit card lending too?

And in this respect, US analysts may have made a massive mistake. Right now, missed credit card payments in the US are at a historical low, and many conclude for this fact that credit card debt is fine, and that it’s not about to blow. But these comments miss the point.

In the US, just like the UK, people are using the rising value of their property to pay off credit card debt; surely that’s the reason whey the credit card market appeared to be so healthy. It seems likely that falling US house prices could have a catastrophic effect on the US credit card market. And consider this, it’s estimated that the US credit card market has around $900 billion in securitised debt, that’s to say, debt that has been sliced up and sold. Strangely enough, the extent of securitised US sub-prime debt was at a similar level.

If that wasn’t all bad enough, there’s oil too. It has fallen by a few dollars over the last few days, but it is still higher than the inflation-adjusted level in the early 1980s.

But that doesn’t mean there is no hope, and on this occasion hope comes in the shape of a falling dollar, while many believe that this time around, the high price of oil does not matter so much. To find out why, read on.

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