Sunday, January 6, 2008

LA Times Saturday

Did you see the LA Times lead Saturday, "Job slump latest omen of recession"?

"The economy is operating at stall speed," said Mark Zandi, chief economist of Moody's, a research firm in West Chester, Pa. "Either something is going to revive it quickly or else we're going to get into a vicious cycle of declining spending and even weaker job growth."

The obvious "something" is further interest rate cuts by the Federal Reserve, but those could threaten renewed inflation, drive down the already weak dollar and even set the stage for another bubble such as the one now deflating in the housing market.

They got the point that the Fed has limited options and may be unable to avert a recession. But then,

The report also left analysts shaking their heads over how problems in a relatively obscure corner of the financial world -- the market for mortgages made to people with poor credit -- could erupt into such an economy-threatening event and could do so in such short order. Most economists barely made note of sub-prime mortgages six months ago.

"You look at the magnitude of the sub-prime problem, and it's just not that big relative to the size of the economy or the financial market," marveled David Wyss, chief economist at Standard & Poor's in New York.

I'm shaking my head that Standard & Poor's (publisher of the S&P/Case-Shiller index that's been falling over a year) chief economist doesn't get it. It's not just "subprime," it's the whole housing bubble and debt-built consumer economy running out of steam, as economists like Nouriel Roubini (his latest) predicted over a year ago.

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