US growth under pressure and Mass Selling Off

Troubled with one of the worst housing recessions and sub prime crisis, US growth is coming under pressure. The Fed lowered its benchmark interest rate by fifty basis point in mid September, to prevent the economy from plunging into recession and mitigate the outcry of massive losses and bankruptcy.

The US GDP growth has been running on consumer debt rather than on savings and the latest estimates are that the total US credit market debt is around 330% of GDP.
Due to this the American consumer is finding it difficult to maintain its earlier levels of spending/ consumption. In order to maintain the growth, credit needs to be intensified which in turn would push the economy in a deeper trouble than what it is now in.

On the surface, the world markets are getting stabilised again, however the big players are desperately trying to get rid of their mortgage obligations; similarly the US home builders are trying to dispose their properties at any available prices.
D R Horton, the second biggest US homebuilder, was unable to sell its properties, sold it for much lesser than it had initially quoted; similarly the other builders are selling homes at any price they can get.
Banks are offering discount of as much as 4 percent to sell some of the $300 billion of leveraged buyout financing they had indulged in before losses on subprime mortgages closed the market for high yield, high risk debt in July.
Investment Banks are offering finance to Vulture Funds on improved and lenient terms if they are willing to buy their (IB’s) debts. The banks have a backlog of $200 billion of LBO which they are trying to recover at discounted prices.

The Fed’s decision to lower benchmark interest rate by half percentage point has definitely assuaged the grief of the firms though is finding itself gruelling to bring the economy on a growth path again and prevent recession.