The collapse of stock exchanges yesterday has brought about dire warnings from economists - and recriminations among politicians.
Economists, analysts and politicians have reacted to the failure of US Congress to pass the government's bank bailout bill.
The markets were panicked by the plan's rejection, with the Dow Jones index dropping by 777 points - its largest-ever one-day fall. Later, Asian markets also dropped and, this morning, European exchanges are also facing severe volatility.
Under the terms of the proposed legislation, a "bad bank" would be created, allowing some of (the) financial firms' most toxic assets to be passed into public hands. Its passing was seen as necessary by many experts, due to the recent severe decline of trust between banks, who are unsure about how many of these bad debts each other holds.
Now, with the rejection, some expect that lending between the firms will freeze up still further, leading to more bank failures. "The inter-bank market has collapsed," Hans Redeker, currency chief at BNP Paribas, told the Daily Telegraph. "We're now seeing a domino effect as the credit multiplier goes into reverse and forces banks to cut back lending to clients."
Speaking to the Guardian Peter Morici, professor of business at the University of Maryland, added: "Things are going to get so bad something will have to be done in the next few weeks. Banks will sink, credit markets will seize, the economy will go into something much worse than a recession."
Meanwhile, on Capitol Hill the blame game has begun over the failure of the bailout bill to pass - with Republicans and Democrats saying that the other party was at fault.
