And now, the great American car crash

GMAC, one of the leading car loan companies, has announced it will be closing most of its north American offices due to rising losses. For years now, Americans have grown used to buying on credit and then paying off their debts by refinancing the mortgages on their homes. This worked as long as house prices rose. But the music stopped last year. House prices are falling and many home owners are finding themselves with negative equity and unable to pay off those credit card bills.

Every day, the newspapers are filled with sob stories of supposedly low-risk borrowers, people with good, stable jobs who borrowed against their houses to pay for vacations or university tuition for their children and now find themselves mired in debt. Their adjustable mortgage rates keep re-setting upwards and the value of their homes goes down. It is a hideous spiral. The personal savings rate in America - the share of income left after consumption - has been falling for years.

In 2001, it was 12 per cent. Today, it is close to zero.