Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy, a key national research group reported on Monday.
Borrowers’ withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples’ minds, according to a survey of 258 members conducted by the National Association of Business Economics.
NABE, a Washington-based association, said 32 per cent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.
Only 20 per cent of members cited defense and terrorism as their biggest immediate worry, down from 35 per cent when the survey was last conducted in March. Credit risk also topped gas prices, inflation and government spending.
“Financial market turmoil has shifted the focus away from terrorism and toward subprime and other credit problems as the most important near-term threats to the US economy,” said Carl Tannenbaum, president of NABE and the chief economist at LaSalle Bank/ABN Amro.
The market turmoil began earlier this year, when mortgage lenders like New Century Financial Corp. and H&R Block Inc’s Option One Mortgage Corp. unit reported their clients were missing payments on their home loans more frequently.
This led the Wall Street banks that finance the mortgage market to ultimately pull much of their money out. With cash draining rapidly from the industry, more than 50 lenders have gone bankrupt and a number of investment funds have gone under.