With the financial crisis weighing on American household budgets and the US consumer appearing to be in a foul mood, the effects on investors and the economy are likely to be harsh. The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index plummeted to 38 in October from an upwardly revised reading of 61.4 in September. This decline brings the index to its lowest level since its inception in 1967.

There is no doubt that consumers are starting to feel the economic squeeze. Keith Hembre, chief economist at FAF Advisors, identifies three main culprits “conspiring to substantially depress household confidence”: deteriorating asset markets, credit markets, and labor markets.

In fact, consumer confidence fell to what they saw on the news in the past month - a plunge in the stock market, the dysfunctional credit markets, the failure of major financial firms, approval of a $700-billion bailout package in Washington, and a Presidential campaign focused on the economic crisis.

The country’s financial system has been under considerable strain in October, as the credit crunch has hampered businesses ability to fund essential activities. According to a statement by Lynn Franco, director of the Conference Board Consumer Research Center, the impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence.

Americans expecting business conditions to worsen over the next six months jumped to 36.6% from 21%. Jerry Webman, chief economist for OppenheimerFunds, the impact on the economy from this crisis of confidence may be even more doom and gloom. Webman said: “When people believe there will be a recession, there will be a recession.”