As to its persistence, necessary conditions for an alleviation of the current strains in credit markets are probably at least twofold. First, that the US housing and household debt markets stabilise. Second, that banks and other financial intermediaries recognise impairments to asset values, so that uncertainties about counterparty credit risks begin to reduce.
On the financial-real economy interaction, we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other. A variety of policy responses are possible.