November 26, 2007
'Odds now favor a recession' - Summers
In a grim column appearing in the Financial Times, former Treasury Secretary and Harvard University President Lawrence Summers says that the financial crisis gripping credit markets is only going to get worse:
Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis.Summers also points to a doubling in the rate of foreclosures next year as well as an even more pronounced credit crunch as causes of an economic slowdown that may lead to a prolonged and serious recession.
Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond. Several streams of data indicate how much more serious the situation is than was clear a few months ago.
First, forward-looking indicators suggest that the housing sector may be in free-fall from what felt like the basement levels of a few months ago. Single family home construction may be down over the next year by as much as half from previous peak levels. There are forecasts implied by at least one property derivatives market indicating that nationwide house prices could fall from their previous peaks by as much as 25 per cent over the next several years.
We do not have comparable experiences on which to base predictions about what this will mean for the overall economy, but it is hard to believe declines of anything like this magnitude will not lead to a dramatic slowing in the consumer spending that has driven the economy in recent years.
Summers recommends swift action by the Fed as well as maintaining the flow of credit through so-called "super conduits" - groupings of banks who assume the debts of lending institutions that need it.
The former Secretary of the Treasury certainly paints a grim picture of our immediate economic future. The question, as always, is how much intervention by the Fed is necessary or desirable? The Fed weilds a huge stick and no one doubts its ability to maintain liquidity in the credit markets. But by doing so, the governors risk letting the inflation genie out of the bottle - something that would do more damage in the long term than any short term fixes.
To comment on this or any other American Thinker article or blog, you must be a subscriber to our ad-free service. Login to your subscription to access the comments section. You can subscribe on a monthly basis for $6.79 a month or for a year at $69.99
Login
Subscribe / Change PwdAd Free / Commenting Login
FOLLOW US ON
Recent Articles
- Podcast Appearances Facilitate Winning Political Campaigns: Implementing Success
- Why Europe Should Close the Door to Most Migrants
- Conservative Policies: The Answer to the Housing Crisis?
- Surviving a House Fire
- Liberalism is incompatible with Christianity
- That Strange, Persistent, Cheering at a CEO's Murder is Proof We Are Now an Idiocracy
- North Korea is China's Proxy
- Scientific Societies Err on 'Climate Change'
- A 2025 Year of Jubilee Could End Slavery in America
- The Laken Riley Act Must Become Law
Blog Posts
- Newsom, Bass guilty of negligent homicide
- I got a feelin' called the DEI blues
- Trump lawfare: it's far from over
- Trans college volleyball: the season ends, the lawsuits begin
- The Fed goes ‘proactively hostile’ against Trump
- How would a Japanese leader handle the California fires?
- The flu shot: More questions than answers
- Should we expect J6 pardons?
- Los Angeles burns, and Lex Luthor was right
- Who’s to blame for the LA fires?
- President-elect Trump and naval ship design
- Ambassadors who support terror
- Defund the Police: we are the enemy
- Second Amendment outlook for 2025
- Firestorm of incompetence in Los Angeles: Water company admits their big reservoir to fight fires was bone dry