Credit spreads and collateralized debt obligations may not mean much to the average U.S. consumer, but if market gyrations persist, Wall Street's pain may come home to hurt Main Street.

Consumer spending, the driving force behind the U.S. economy, has slowed in the past few months, although it did prove remarkably resilient through a series of gasoline price spikes and the early stages of the housing market slump.

Easy credit terms have underpinned that spending, and this week's wild ride in financial markets shows how deeply the global economy depends on that free-flowing cash too.

The problem is, the easy money is drying up.

First it was mortgage-related markets where credit tightened as home prices fell and subprime mortgage defaults hit a record high.

The root of the problem can be traced back to U.S. home loans made to people with poor credit histories. But it became a global market problem when the investment community bundled those loans and sliced them up into risky, riskier and riskiest pieces that were resold to investors such as hedge funds and banks.

Homeowners had little to do with that -- and were often unaware that someone other than their mortgage companies held their notes.

But in recent weeks, the pain has spread to corporate debt as credit markets have tightened up, and some businesses are starting to hoard cash.

If consumer credit availability shrinks too -- beyond the mortgage market -- spending will suffer.

Not all liquidity problems are created equal and the drying up of short-term liquidity to financial institutions in recent days is a far more serious concern to central banks, said Bruce Kasman, chief economist at J.P. Morgan.

If left unchecked, it can produce a widespread withdrawal of funding that can quickly transform a liquidity squeeze into disruptions for the normal activities of businesses and households, he said.

Central banks worldwide have injected at least $323.3 billion in the past 48 hours to stave off a global liquidity crunch.

The Standard & Poor's 500 index of large companies was down 1.2 percent at one point on Friday morning after a sharp fall on Thursday and was down about 8 percent from an all-time high notched on July 16 before trimming losses at midday.


So far, the credit problems have been concentrated in the investment world, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

This is a 90 percent Wall Street problem and a 10 percent Main Street problem, he said. Economic growth worldwide is strong and fundamental valuation, particularly among large capitalization growth stocks, is reasonable even when adjusting for higher costs of capital.

The timing of the credit tightening could be problematic. It's only August, but U.S. retailers are already getting holiday shipments and planning promotions.

Chain stores eagerly offered interest-free financing on big-ticket items like appliances and furniture in recent years, but may be reluctant to do so again if credit is costlier.

Retailers reported disappointing July sales on Thursday, although several chains said early-season demand for back-to-school merchandise looked promising. Auto sales have also been weak, and General Motors Corp. earlier this week lowered its 2007 forecast for industrywide U.S. sales.

The Federal Reserve and its European counterpart have both injected money into financial markets in recent days in an attempt to calm investors' nerves, and U.S. government officials from President George W. Bush on down insist that economic fundamentals remain sound.

Bush and Treasury Secretary Henry Paulson cite low inflation, a strong job market and global economic growth for their rosy view, but there are some early signs that businesses may be pulling back.

A recent survey by the Association for Financial Professionals found that U.S. businesses were holding high levels of cash, and about 36 percent said they were building their cash positions.

Growing cash piles suggest that some businesses are wary of investing heavily now, whether because of concerns about a future credit crunch or a sense that economic growth is slowing.

Ironically, worries about a weakening U.S. economy may end up helping the U.S. consumer.

Oil prices have fallen about 10 percent so far this month because of U.S. growth concerns, which means households will soon be spending less at the gasoline pump -- and may have more money to buy back-to-school backpacks and jeans.

Some Wall Street economists believe the Fed will have an early Christmas present for consumers: an interest rate cut, perhaps as early as this month.