President-elect Obama's first big challenge is not going to be concluding the Doha round of trade negotiations or aid to Africa, but the size of the next bailout package, says chief economist from Investment Solutions, Chris Hart.

Hart, who was speaking on Tuesday at a conference organised by Omega Investment Research on the impact of the current changes on South Africa and the world, said that a concerning trend was that what started as a subprime problem is morphing into a prime interest rate problem.

This is leading to stock markets losing value, he notes, as it places pressure on the financial markets.

"The problem is likely to continue and central banks are trying to pump air into tyre that has been slashed – they need to repair the puncture and that is where we are not really coming through," said Hart.

He notes that the problems have pulled the economy into the political sphere.

Hart says that the dollar has been strong as a "giant vacuum cleaner" trying to suck liquidity out of the global system

"A key problem is house prices – it is the single most important economic indicator in the world because it is the collateral backing the banking system," he said.

He feels the problems will continue while house prices are in decline.

"The write-off pipeline will continue to default over the next few years.

"This is not a short-term problem – it's a long-term problem," concluded Hart.

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