The Recession Is Just Beginning

For some time now (probably since last August or earlier) I have been predicting that a bad current economic downturn was coming due to the collapse of the U.S. Housing market and that despite all the statements from the Pollyanna set, that it was going to be long and ugly. Now, Washington Post business columnist, Steve Pearlstein is saying the same thing. In my view, until housing begins to turn around - or at least stabilize - things are only going to get worse. Despite this, Congress has yet to really wake up to the magnitude of the problem. In addition to homeowners on the verge of losing their homes, the impact of the housing collapse is having an ever wider ripple effect. Ask anyone in a business related to real estate and they will tell you that things are dire indeed. here are some highlights from Pearlstein's column:

*

So much for that second-half rebound. Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal. It ain't gonna happen. Not this summer. Not this fall. Not even next winter. This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.

*

In explaining why that second-half rebound never occurred, the Fed and the Treasury and the Wall Street machers will say that nobody could have foreseen $140 a barrel oil. As excuses go, blaming it on an oil shock is a hardy perennial. That's what Jimmy Carter and Fed Chairman Arthur Burns did in the late '70s, and what George H.W. Bush and Alan Greenspan did in the early '90s. Don't believe it.

*

American Express and Discover warn that customers are falling further behind on their debts. UPS and Federal Express report a noticeable slowdown in shipments, while fuel costs are soaring. According to the Case-Shiller index, home prices in the top 20 markets fell 15 percent in April from the year before, and Fannie Mae and Freddie Mac report that mortgage delinquency rates doubled over the same period -- and that's for conventional home loans, not subprime.

*

You know things are bad when middle-class Americans have to give up their boats and Brunswick, the nation's biggest maker of powerboats, is forced to close 10 plants and lay off 2,700 workers. For much of the year, optimists took comfort in the continuing strength of the technology sector and exports to fast-growing countries around the world. But even those bright spots have dimmed.

*

Like the rain-swollen waters of the Mississippi River, this sudden surge of downbeat news has now overflowed the banks of economic policy and broken through the levees of consumer and investor confidence. At this point, there's not much to do but flee to safety, rescue those in trouble and let nature take its course. And don't let anyone fool you: It will be a while before things return to normal.