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In a report “Recession Coming” released today, the Morgan Stanley’s US team said the credit crunch is starting to inflict serious damage on US companies and that the economy is headed for a recession. Is it any suprise when the US stock market gets stimulated on news of Middle East loans to Citibank to pull them out of their crisis that America’s headed for some dark days ahead?

As delinquencies and defaults soar, lenders are tightening credit for commercial, credit card and auto lending, as well as for all mortgage borrowers,” said the report, written by the bank’s chief US economist Dick Berner. He said the foreclosure rate on residential mortgages had reached a 19-year high of 5.59pc in the third quarter while the glut of unsold properties would lead to a 40pc crash in housing construction. We think overall housing starts will run below one million units in each of the next two years — a level not seen in the history of the modern data since 1959,” he said. Although the US job market has apparently held up well, an average monthly fall of 138,000 in the number of self-employed workers over the last quarter suggests it may now be buckling. Consumers face what could be a perfect storm, said Mr Berner.

Morgan Stanley is the first major Wall Street bank to warn that it is may now be too late to stop a recession, though most have shifted to an ultra-cautious stance in recent weeks. Like Goldman Sachs, and Lehman Brothers, the bank no longer believes Asia and Europe will come to the rescue as America slows.