United States and the euro zone: The deterioration in financial markets was irrational at first, but it may slow down growth significantly, especially in the United States

The fall in equity markets, the widening of credit spreads and the increase in risk premia on bank bonds were irrational at first , given the good financial condition of companies and banks. But if it lasts too long, the deterioration in financial markets will slow down growth sharply, due to: Wealth effects ( rising household savings rate, declining corporate investment) associated with falling share prices; The end of US companies’ capacity to issue bonds due to the widening of credit spreads; The rise in interest rates on bank loans in the euro zone due to the rise in banks’ funding cost.