As bad as the events in the financial markets have been over the last few weeks, the risk that the credit markets will spiral downward has increased.

That's what Nigel Gault, Global Insight's chief U.S. economist, said on a conference call yesterday. You may wonder how things could get worse. Welcome to the "negative feedback loop":

As lenders worry about their prospects, they lend less. With fewer loans, the economy slows down. That results in more job losses and higher unemployment rates. Mortgage delinquencies and foreclosures rise, while housing prices fall. Lenders become less likely to lend and on it goes.

Still many readers are probably more concerned about their own household finances in the near term. Let me retreat to the proverb "Hope for the best, but prepare for the worst."

Take a deep breath before opening your next quarterly statement from 401(k) plan administrator. The value of those assets is bound to be lower. You're going to feel less wealthy.

As for your house - the other major asset many of us have - it's not appreciating as it once did. For some, it may be worth less than you think, especially should you put it up for sale right now.

Borrowers are going to find it harder to get credit. Mortgage rates have fallen a bit, but lenders have been tightening the terms to qualify.

Maybe a new job with a better salary could cure your financial straits. But the job market is trending down.

Employers have eliminated jobs every month this year for a total of 605,000 jobs. According to Global Insight, we may not even be halfway through the job destruction cycle. The firm has raised its forecast for jobs losses to 1.5 million from 1 million compared with the December 2007 employment peak of 138.1 million jobs.

Also, don't count on another federal tax rebate check this fall. The latest $50 billion plan being discussed in Washington would be aimed at the nation's infrastructure, not at individuals.

The bottom line: Save up and prepare for lean times because the credit crunch is bigger than the experts thought.