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Recession looms large
for American economy 
Ex-Treasury Secretary Summers says risks
'greater than any since aftermath of 9/11'

Former Clinton Treasury Secretary Larry Summers, a strong proponent of free trade and globalization, is warning the U.S. could be heading into recession due to the ongoing sub-prime mortgage crisis.

"It would be far too premature to judge this crisis over," Summers told the London Telegraph for today's edition. "I would say the risks of recession are now greater than they've been any time since the period in the aftermath of 9/11."

Traders are bracing for another week of uncertainty after the near breakdown of America's $2,200 billion market for commercial paper.

Investors are said to be waiting to learn whether or not the Federal Reserve would succeed in stabilizing the market, the latest domino to fall in the spreading contagion from sub-prime debt.

"Investors have suddenly lost trust in this form of debt, fearing it may be tainted by exposure to [collateralized debt obligations]," writes veteran journalist Ambrose Evans-Pritchard in the Telegraph.

He notes stock markets rallied late last week on the belief the Fed would start to cut its key lending rate next month, and that the European Central Bank would refrain from further tightening.

"Goldman Sachs said any hint the banks may prove more hawkish could quickly dampen investor spirits again, warning it was too early to give 'all clear' on equities," Pritchard writes.

Federal Reserve data reveal the outstanding stock of U.S. commercial paper has fallen by $255 billion over the last three weeks, indicating borrowers have been unable to roll over large amounts of debt.

"The fall is comparable to the sudden shrinkage that occurred at the onset of the dotcom bust, and may have the effect of draining liquidity," Pritchard said.

On Friday, the Fed issued a statement stressing asset-backed commercial paper, or ABCP, would be accepted as collateral for loans to banks from the discount window. That helped trim the average yield slightly to 6.04 percent, helping to calm a key part of the money market.

Still, the cost of this credit is still up roughly 80 basis points since late July, for those borrowers who can obtain it at all, reports the Telegraph. Bill Gross, head of the US bond-giant PIMCO, said parts of the commercial paper industry were now so discredited that it may be impossible to revive them.

With the prices of everything increasing so rapidly recently I have been saying the same thing, only I have also say that a depression could also happen quite quickly.