In the USA some pundits are now saying the mortgage blues will last longer and go deeper than at first thought. Meanwhile?? in?? the UK the government spins that the sharp leap in repossessions is not the result of higher interest rates, but a sign that we have sub prime loans here too! When will they learn that hiking interest rates can turn a good loan into a bad one for a bank, as people struggle to pay the extra interest they did not have in their budget?

The credit crunch will continue as long as the Fed and the Bank of England want it to. They allowed too much easy credit in the good days. They now have to decide how much pain to give us to rein it all back in. Some think they will soon give up, and allow interest rates to fall again to limit the damage. Others think there is still too much growth and inflation in both the US and the UK, and the respective monetary authorities will have to be tougher for longer.

In the UK the Monetary Policy Committee of the Bank of England lived a charmed life in its first ten years as a more "independent" institution setting interest rates. It decided on easy popularity through easy money, aided and encouraged by a Chancellor of the Exchequer who made the inflation?? target easier for them to hit by switching from the Retail Price Inidex to the Consumer Price Index at a crucial moment. Now they have to sober up, and squeeze the inflation out of the system which their combined easy money policy produced.

Whilst they are doing so, people in the markets are going to have to take a long hard look at their assets and be more realistic about the value of loans to people and companies that will struggle to meet the payments.

It is not all bad news for the world economy. The easy money policies of the US, the UK and Euroland are being reined back at a time when the easy money policies of Asia and the Middle East continue. All the time the oil producers and the Asian tigers have so much income from exports they have cash to spend worldwide, they can??use this to buy assets in the west, which limits the falls in some asset prices as a result.

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