The flow of liquidity has improved slightly, and interbank rates have fallen. In the US and Europe, these rates were more than 2 percentage points above the key rate in October last year, but now the gap has been halved. As a result, the low rates set by central banks are having a greater effect. In the US, mortgages and corporate loans have become cheaper after the Federal Reserve began to purchase bonds and commercial paper issued by mortgage banks and firms. In Germany, Sweden and Denmark, mortgage rates have decreased markedly. And in Norway, borrowing rates have fallen and credit to homebuyers is flowing again. Equity and commodity prices are still fluctuating widely, but the decline is no longer steep. BIS Review 16/2009  9  Lower key rates, higher public expenditure and reduced taxes will push up demand for goods and services, gradually stabilising output and employment and preventing inflation from becoming too low. There are also strong self-regulating mechanisms in market economies that can easily be underestimated when times are at their bleakest. Corporate profitability is being squeezed, but the rise in unemployment will result in lower wage growth, which will curb the impact on earnings. Investment is falling sharply, but there will in time be a need for new houses and commercial buildings and to replace obsolete machinery. Households all over the world are now increasing their saving and reducing debt. When debt eventually reaches a sustainable level, consumption will pick up.
Mr Carse gives a speech on the subject of credit risk during the Asian crisis Speech by Mr David Carse, a Deputy Chief Executive of the Hong Kong Monetary Authority, at the Asian International Conference & Trade Credit Workshop in Hong Kong on 5 May 1999. Ladies and gentlemen, I am very pleased to have the opportunity to speak to you today on the subject of credit risk during the Asian crisis. Given the fact that just about every economy in the region has been affected by the crisis to a greater or lesser extent, this is rather a large topic; and I hope that you will forgive me therefore if I begin with some generalities about the region as a whole, but then make some specific observations based on my own direct experience of credit risk as it has affected banks in Hong Kong. Hong Kong is a melting pot of international and regional banks and you can be sure that any credit problems that surfaced in Hong Kong during the crisis manifested themselves elsewhere in the region, and probably in a much more virulent form. It is a sobering fact that we are only two months away from the second anniversary of the Asian crisis, and we are still analyzing what went wrong. Explaining the origins of the crisis has helped to maintain many academics, particularly in the United States, in gainful employment.