It is now a year since the US subprime crisis went global and the repricing of risk has not resulted in the financial crisis being a brief interruption in the economic progress of the US and world economy. Contrary to th opinions of most economic commentators we have an ever deepening financial crisis and an economic slowdown coming at the end of an incredible boom.

The International Monetary Fund has finally got around to saying that the financial crisis that began in the US mortgage market is spreading deeper into other countries and other forms of debt - and countries that rely on foreign borrowing are vulnerable. That would include Australia, judging by the recent actions of the National Australia Bank and the ANZ in revealing larger than anticipated write-downs and bad debt provisions. Shares in Australian banks keep tumbling bringing the unprecedented three days of losses to more than $30 billion.

What we can infer from these write downs of its sub prime mortgage securities (SDO's) and write offs of problem loans is that the ANZ, NAB and other banks are being squeezed by the global credit crisis that has caused funding costs to soar, even if they have escaped the worst of the credit market turmoil. Now they talk in terms of not seeing the bottom of the credit crunch in a slowing economy. Does this outweigh the dangers of inflation?

Things look particularly gloomy on Wall Street, where the global investment bank Merrill Lynch is going down the tube as it continues its write down its CDOs in order to reduce its balance sheet exposure.The financial sector has written off hundreds of billions of dollars. yet the financial crisis has had limited impact on the rest of the economy, so far.

The US economic growth continues to slow. House prices continue to fall, the budget deficit continues to balloon, the current deficit worsens, the regional banks look increasingly shaky, and unemployment is rising as is inflation. It's a downturn, but how severely the US economy will contract is still unclear.

Washington is in retreat from laissez-faire and deregulation of financial markets because the laissez-faire, deregulatory policies have produced a world wide economic crisis. So the shift is to greater government intervention and more regulation to order the chaos. The regulators are even talking in terms of market failure!