Trump and the Seemingly Faltering Economy

Donald Trump likes to claim he is responsible for the United States' economy and boasts about the stock market. The truth is that he merely inherited a growing economy from the Obama administration and that to date, his regime has done little to provide a basis for claiming responsibility for the economy which has grown, yet since much of the benefit go to the top 1% percent of taxpayers (especially due to the Trump/GOP tax break give away).  Now, with signs that the economy may be on the verge of faltering, Trump economic and trade policies may be a driving force towards a slow down and recession in 2020 - a recession (f not depression) already slamming American farmers thanks to Der Trumpenführer's tariffs and trade wars.  A column in the New York Times suggests that Trump's policies are a flop and, worse yet, his regime has no plan on how to deal with an economic slow down other than to blame "fake news" and the Federal Reserve.  Here are highlights:

Last year, after an earlier stock market swoon brought on by headlines about the U.S.-China trade conflict, I laid out three rules for thinking about such events. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.

But maybe I should add a fourth rule: The bond market sorta kinda is the economy.

An old economists’ joke says that the stock market predicted nine of the last five recessions. Well, an “inverted yield curve” — when interest rates on short-term bonds are higher than on long-term bonds — predicted six of the last six recessions. And a plunge in long-term yields, which are now less than half what they were last fall, has inverted the yield curve once again, with the short-versus-long spread down to roughly where it was in early 2007, on the eve of a disastrous financial crisis and the worst recession since the 1930s.

[T]he bond market is telling us that the smart money has become very gloomy about the economy’s prospects. Why? The Federal Reserve basically controls short-term rates, but not long-term rates; low long-term yields mean that investors expect a weak economy, which will force the Fed into repeated rate cuts.

So what accounts for this wave of gloom? Much though not all of it is a vote of no confidence in Donald Trump’s economic policies.

[L]ast year, after a couple of quarters of good economic news, Trump officials were boasting that the 2017 tax cut had laid the foundation for many years of high economic growth. Since then, however, the data have pretty much confirmed what critics had been saying all along. Yes, the tax cut gave the economy a boost — a “sugar high.” Running trillion-dollar deficits will do that. But the boost was temporary. In particular, the promised boom in business investment never materialized.

At the same time, it has become increasingly clear that Trump’s belligerence about foreign trade isn’t a pose; it reflects real conviction. Protectionism seems to be up there with racism as part of the essential Trump. And the realization that he really is a Tariff Man is having a serious dampening effect on business spending, partly because nobody knows just how far he’ll go. [T]hink of the dilemma facing many U.S. manufacturers. Some of them rely heavily on imported parts; they’re not going to invest in the face of actual or threatened tariffs on those imports. Others could potentially compete with imported goods if assured that those imports would face heavy tariffs; but they don’t know whether those tariffs are actually coming, or will endure. So everyone is sitting on piles of cash, waiting to see what an erratic president will do. Of course, Trump isn’t the only problem here. Other countries have their own troubles — a European recession and a Chinese slowdown look quite likely — and some of these troubles are spilling back to the United States. But even if Trump and company aren’t the source of all of our economic difficulties, you still want some assurance that they’ll deal effectively with problems as they arise. . . . reportedly, is that there is no policy discussion at all, which isn’t surprising when you bear in mind the fact that basically everyone who knows anything about economics left the Trump administration months or years ago.

[T]the administration’s only plan if things go wrong seems to be to blame the Fed, whose chairman was selected by … Donald Trump. To be fair, it’s now clear that the Fed was wrong to raise short-term rates last year.

But it’s important to realize that the Fed’s mistake was, essentially, that it placed too much faith in Trumpist economic policies. . . . the Trump boom wasn’t supposed to be so fragile that a small rise in rates would ruin it.

I might add that blaming the Fed looks to me like a dubious political strategy. How many voters even know what the Fed is or what it does?

Investors were clearly far too optimistic last fall, but they may be too pessimistic now.  But pessimistic they are. The bond market, which is the best indicator we have, is declaring that Trumponomics was a flop.

Today's Republicans Are the Real Extremists

As long time readers know, I grew up in a Republican household and had both parents and grandparents who were Republicans for the majority of their lives.  I followed in their foot steps and became a party activist, served on the Virginia Beach City Committee and even incorporated that body (as Virginia SCC documents available online confirm).  Yet before the end of my parents' life times they and the rest of my family fled the GOP.  It's not that we had change.  Rather, it was the Republican Party that had changed drastically as a result, in retrospect of the Party's embrace of Christofascists and white supremacists. The end result has been a GOP that is extreme and bears no resemblance to the GOP of the 1950, 1960's or even the 1980's under Reagan.  Yet, many Republican "friends" continue to close their eyes to the reality that the GOP they remember is no more and that the party for which they continue to vote has become both extreme and something ugly, especially under Donald Trump, a/k/a Der Trumpenführer.  A column in the New York Times makes the case that the real extremists today are Republicans, not the Democrats they target for abuse and perhaps even violence.  Here are excerpts:

All of Donald Trump’s major policies have failed substantively, politically, or both. His one big legislative achievement, the 2017 tax cut, remains unpopular. His attacks on Obamacare have only enhanced public approval of the program. His fearmongering has cemented majority opposition to his proposed border wall.

But while today’s G.O.P. can’t do policy, it commands a powerful propaganda machine. And this machine is now dedicated to a strategy of portraying Democrats as extremists. It might work — but it shouldn’t, because Democrats aren’t extremists, but Republicans are.

The attack on Democrats has largely involved demonizing two new members of Congress, Representative Ilhan Omar and Representative Alexandria Ocasio-Cortez. Omar is Muslim, and the usual suspects have gone all-out in using an out-of-context quotation to portray her, completely falsely, as sympathetic to terrorists.

It’s surely not an accident that these two principal targets are both women of color; there’s a sense in which supposed concerns about extremism are just a cover for sexism and white nationalism. But it’s still worth pointing out that while both Omar and AOC are on the left of the Democratic Party, neither is staking out policy positions that are extreme compared with either expert views or public opinion.

Take AOC’s famous advocacy of a 70 percent tax rate on very high incomes. Economists who knew anything about public finance immediately recognized that number as coming from a widely cited paper by Peter Diamond and Emmanuel Saez, two of the field’s leading figures. You don’t have to agree with their analysis to recognize that AOC, far from showing her ignorance, was actually drawing on solid research.

Nor does the public find the idea outrageous. An overwhelming majority believe that people with high incomes pay too little in taxes, and polls show wide support for AOC’s proposal.

Republicans, on the other hand, really are extremists. As Thomas Mann and Norman Ornstein put it in 2012 — long before the rise of Trump — the modern G.O.P. is “ideologically extreme” and uninterested in “facts, evidence, and science.” For example, major figures in the party routinely dismiss global warming as a hoax perpetrated by a vast global conspiracy.

Or consider the views of Stephen Moore, who Trump is trying to put on the board of the Federal Reserve.

He’s a former editorial writer for The Wall Street Journal, a former chief economist at the Heritage Foundation, a fixture at conferences like FreedomFest. Given this background, it may not be surprising that he’s a firm believer in failed economic doctrines, especially the insistence that tax cuts for the wealthy have magical effects.

What’s coming out only now, however, is the extent of Moore’s political extremism. Many of his past statements — like his assertion that “capitalism is a lot more important than democracy” — sound like a liberal caricature of conservatism. But it’s not a caricature; Moore shows us what the right actually thinks.

I mentioned that an overwhelming majority of Americans believe that the rich pay too little in taxes. Moore, on the other hand, wants to eliminate income taxes and replace them with sales taxes, which would dramatically shift the tax burden away from the rich and onto the middle class.

He also wants to privatize Social Security, a program that is both hugely popular and the bedrock of retirement security for American workers. Moore would convert it into a 401(k)-type system. He is also fiercely hostile to Medicaid, which covers 65 million Americans.

Finally, Moore has proposed, in advance, a purge of the institution Trump wants him to join, calling for firing “hundreds” of Federal Reserve economists “who are worthless.” These would, presumably, be the economists who considered low interest rates and monetary expansion valuable tools in fighting the Great Recession, at the same time Moore was predicting that these policies would send inflation soaring. Guess who was right.

So even if you cherry-pick left-leaning Democrats, a look at their actual positions shows them to be not at all extreme. At the same time, pillars of the right-wing establishment hold views that are utterly at odds with both evidence and public opinion. Republicans are the real extremists.

Again, this is why I ceased to be a Republican two decades ago.

Setting the Stage for a Possible Global Recession.

Racism and greed were, in my view, the main motivations for those who voted for Trump in 2016.  The racists were the angry whites fearful of lost white privilege while never looking in the mirror to see their own role in the plight.  The other group was comprised of the very wealthy and others of a similar mindset who want to horde their money and never contribute to the best interests of the nation.  Now, thanks to the actions of Der Trumpenführer - trade wars, tax cuts ballooning the federal deficit, and the government shutdown - , actions  of like minded anti-immigrant racists in the UK and other parts of Europe, and China's structural economic problems, these same people may be about to see the start of a recession that will worsen their plights.  A column in the New York Times looks at the potentially coming Trump/GOP recession.  Here are highlights: 

The last global economic crisis, for all its complex detail, had one big, simple cause: A huge housing and debt bubble had emerged in both the United States and Europe, and it took the world economy down when it deflated. 

[The slump] in 1990-91, was a messier story. It was a smorgasbord recession — a downturn with multiple causes, . . . . The best guess is that the next downturn will similarly involve a mix of troubles, rather than one big thing. And over the past few months we’ve started to see how it could happen. It’s by no means certain that a recession is looming, but some of our fears are beginning to come true. Right now, I see four distinct threats to the world economy. (I may be missing others.)

China: Many people, myself included, have been predicting a Chinese crisis for a long time — but it has kept not happening. China’s economy is deeply unbalanced, with too much investment and too little consumer spending; but time and again the government has been able to steer away from the cliff by ramping up construction and ordering banks to make credit ultra-easy.

But has the day of reckoning finally arrived? Given China’s past resilience, it’s hard to feel confident. Still, recent data on Chinese manufacturing look grim.

And trouble in China would have worldwide repercussions. We tend to think of China only as an export juggernaut, but it’s also a huge buyer of goods, especially commodities like soybeans and oil; U.S. farmers and energy producers will be very unhappy if the Chinese economy stalls.

Europe: For some years Europe’s underlying economic weakness, due to an aging population and Germany’s obsession with running budget surpluses, was masked by recovery from the euro crisis. But the run of good luck seems to be coming to an end, with the uncertainty surrounding Brexit and Italy’s slow-motion crisis undermining confidence; as with China, recent data are ugly.

And like China, Europe is a big player in the world economy, so its stumbles will spill over to everyone, the U.S. very much included. Trade war: Over the past few decades, businesses around the world invested vast sums based on the belief that old-fashioned protectionism was a thing of the past. But Donald Trump hasn’t just imposed high tariffs, he’s demonstrated a willingness to violate the spirit, if not the letter, of existing trade agreements. . . . . For now, corporate leaders reportedly believe that things won’t get out of hand, that the U.S. and China in particular will reach a deal. But this sentiment could turn suddenly if and when business realizes that the hard-liners still seem to be calling the shots.
 The shutdown: It’s not just the federal workers not getting paid. It’s also the contractors, who will never get reimbursed for their losses, the food stamp recipients who will be cut off if the stalemate goes on, and more. Conventional estimates of the cost of the shutdown are almost surely too low, because they don’t take account of the disruption a non-functioning government will impose on every aspect of life.

As in the case of a trade war, business leaders reportedly believe that the shutdown will soon be resolved. But what will happen to investment and hiring if and when corporate America concludes that Trump has boxed himself in, and that this could go on for many months?

So there are multiple things going wrong, all of which threaten the economy. How bad will it be?

The good news is that even taking all these negatives together, they don’t come close to the body blow the world economy took from the 2008 financial crisis. The bad news is that it’s not clear what policymakers can or will do to respond when things go wrong.

Monetary policy ­— that is, interest rate cuts by the Federal Reserve and its counterparts abroad — is normally the first line of defense against recession. But the Fed has very limited room to cut, because interest rates are already low, and in Europe, where rates are negative, there’s no room at all.

Fiscal policy — temporary hikes in government spending and aid to vulnerable workers — is the usual backup to monetary easing. But would a president who’s holding federal workers hostage in pursuit of a pointless wall be willing to enact a sensible stimulus?

Finally, dealing effectively with any kind of global slump requires a lot of international cooperation. How plausible is that given who’s currently in charge?

Again, I’m not saying that a global recession is necessarily about to happen. But the risks are clearly rising: The conditions for such a slump are now in place, in a way they weren’t even a few months ago.

The 99% and American Insecurity

As the Republican Party's presidential candidates begin to disingenuously talk about their "concern for working Americans," "American workers," and/or the middle class, they conveniently ignore the reality that their party's policies have exacerbated the dire straits that most Americans face.  Worse yet, they and their wealthy supporters have no clue how most Americans live and just how financially insecure most in the 99% are in fact.  A column in the New York Times looks at this reality and the clueless mindset of the wealthy.  Here are some excerpts:

America remains, despite the damage inflicted by the Great Recession and its aftermath, a very rich country. But many Americans are economically insecure, with little protection from life’s risks. They frequently experience financial hardship; many don’t expect to be able to retire, and if they do retire have little to live on besides Social Security.

Many readers will, I hope, find nothing surprising in what I just said. But all too many affluent Americans — and, in particular, members of our political elite — seem to have no sense of how the other half lives. Which is why a new study on the financial well-being of U.S. households, conducted by the Federal Reserve, should be required reading inside the Beltway.

Before I get to that study, a few words about the callous obliviousness so prevalent in our political life.

I am not, or not only, talking about right-wing contempt for the poor, although the dominance of compassionless conservatism is a sight to behold. According to the Pew Research Center, more than three-quarters of conservatives believe that the poor “have it easy” thanks to government benefits; only 1 in 7 believe that the poor “have hard lives.” And this attitude translates into policy. What we learn from the refusal of Republican-controlled states to expand Medicaid, even though the federal government would foot the bill, is that punishing the poor has become a goal in itself, one worth pursuing even if it hurts rather than helps state budgets.

Take, as a prime example, positioning on Social Security. For decades, a declared willingness to cut Social Security benefits, especially by raising the retirement age, has been almost a required position — a badge of seriousness — for politicians and pundits who want to sound wise and responsible. After all, people are living longer, so shouldn’t they work longer, too? 

Meanwhile, the reality is that living longer in our ever-more-unequal society is very much a class thing: life expectancy at age 65 has risen a lot among the affluent, but hardly at all in the bottom half of the wage distribution, that is, among those who need Social Security most. . . . A majority of Americans over 65 get more than half their income from Social Security, and more than a quarter are almost completely reliant on those monthly checks.

Washington still has no clue about the realities of life for those not yet elderly. Which is where that Federal Reserve study comes in. . . . . 3 in 10 nonelderly Americans said they had no retirement savings or pension, and that the same fraction reported going without some kind of medical care in the past year because they couldn’t afford it. Almost a quarter reported that they or a family member had experienced financial hardship in the past year.And something that even startled me: 47 percent said that they would not have the resources to meet an unexpected expense of $400 — $400! They would have to sell something or borrow to meet that need, if they could meet it at all.

[W]hile things could be worse, they could also be better. There is no such thing as perfect security, but American families could easily have much more security than they have. All it would take is for politicians and pundits to stop talking blithely about the need to cut “entitlements” and start looking at the way their less-fortunate fellow citizens actually live.

What continually strikes me is that the GOP and much of its base claims to support and value Christian beliefs, yet in fact, they don't give a damn about others, especially the poor and unfortunate.  Indeed, they are modern day Pharisees.  Hence why I am no longer a Republican and why in many ways I don't want to be called a Christian.  Christianity as defined and practiced by the far right is truly something foul and ugly.  

The Paralyzed Federal Reserve - Bad News For All of Us

In the New York Times Paul Krugman looks at the paralyzed Federal Reserve which needs to engage in stimulus actions, yet sits watching as the economy teeters back toward recession. Krugman places blame on Fed Chair Ben Bernanke who seems afraid of his shadow - not to mention the batshit insanity of Rick Perry. It's an attitude of "to Hell with the country" as the needs of the nation are placed behind personal ambition and fear of criticism from crazy people. It's disconcerting that so many in public office - especially in the Republican Party - no longer put the nation even remotely first. It's all about the party and pandering to the worse anti-Constitution elements of the public . Here are some highlights:

As I write this, investors around the world are anxiously awaiting Ben Bernanke’s speech at the annual Fed gathering at Jackson Hole, Wyo. They want to know whether Mr. Bernanke, the chairman of the Federal Reserve, will unveil new policies that might lift the U.S. economy out of what is looking more and more like a quasi-permanent state of depressed demand and high unemployment.

But I’ll be shocked if Mr. Bernanke proposes anything significant — that is, anything likely to make any serious dent in unemployment or offer any serious boost to growth. Why don’t I expect much from Mr. Bernanke? In two words: Rick Perry.

I’m using Mr. Perry — who has famously threatened Mr. Bernanke with dire personal consequences if he pursues expansionary monetary policy before the 2012 election — as a symbol of the political intimidation that is killing our last remaining hope for economic recovery.

Obviously, the U.S. economy remains deeply depressed, and under normal conditions we would expect the Fed to pump it up by cutting interest rates. But the interest rates the Fed normally targets — basically rates on short-term U.S. government debt — are already near zero. So what can the Fed do?

[I]n 2000 an economist named Ben Bernanke offered a number of proposals . . . . . These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years,” which would encourage borrowing and discourage people from hoarding cash; . . .

Was Mr. Bernanke on the right track? I think so — as well I should, since his paper was partly based on my own earlier work. So why isn’t the Fed pursuing the agenda its own chairman once recommended for Japan? . . . . The larger answer, however, is outside political pressure. Last year, the Fed actually did institute a policy of buying long-term debt, generally known as “quantitative easing” (don’t ask). But it faced a political backlash out of all proportion to its modest effect on the economy, culminating in Mr. Perry’s declaration that any further monetary easing before the 2012 election would be “almost treasonous,” and that if Mr. Bernanke went ahead and did it, “we would treat him pretty ugly down in Texas.”

With prominent Republicans like Representative Paul Ryan already denouncing policies that allegedly “debase the dollar,” a political firestorm would be guaranteed. . . . . So now you see why I don’t expect any substantive policy announcements at Jackson Hole. Back in 2000, Mr. Bernanke accused the Bank of Japan of suffering from “self-induced paralysis”; well, now the Fed is suffering from externally induced paralysis. In effect, it has been politically intimidated into standing by while the economy stagnates. And that’s a very, very bad thing.

With the Fed also intimidated into inaction, it’s hard to see any end to the ongoing economic disaster.

Christianist Organization Has Fits Over Rainbow Flag at Federal Reserve

If Chuck Colson is a mean spirited charlatan who makes a living as a professional Christian, so too are the gay haters on the staff at The Family Foundation (a Focus on the Family affiliate) based in Richmond, Virginia. Rather than stay home and be a dutiful wife as some would argue the Bible requires, TFF's president, Victoria Cobb, works tirelessly to make life as unpleasant as possible for Virginia's LGBT citizens. Indeed, she works to disseminate as many untruths about us as possible and gets her panties in a wad incessantly. No simply joy or minor recognition of LGBT citizens is too small to set off whining on the part of Cobb and her fellow religious extremists. As wingnut news outlet OneNewsNow reports, a gay flag flying at the Richmond Federal Reserve building set Ms. Cobb to convulsing and spraying spittle. Here are some highlights:
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President Obama has declared June "Lesbian, Gay, Bisexual, and Transgender Pride Month" -- and to the dismay of a pro-family group based in Richmond, Virginia, the Federal Reserve Bank is joining in the celebration.
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Though The Family Foundation's new office in Richmond has a beautiful view of the state capitol and the flags, the rainbow flag fluttering from the flagpole outside the Federal Reserve Bank of Richmond is also in view.
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"Our expectation is it'll be flying all month," she predicts. "We think the Federal Reserve ought to be focused on the economy rather than focusing on special rights."
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The Federal Reserve is a private operation and is not government run, but Cobb points out that it is simply following the nation's leadership in promoting a lifestyle that involves less than two percent of the population.
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According to Cobb, more than just bank employees are offended. "We know of businesses that are actually housed within the Federal Reserve building that I [bet] are very unhappy today," she suggests. "So it's going to be interesting to get the feedback from them." But aside from the workers, she says the flag flies in the face of most Virginians. "In Virginia, this is not a stand that should be taken.
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In an interview with the website Richmond.com, Sally Green -- identified as the bank's chief operating officer -- says the institution "strongly support[s] a diverse and inclusive culture" and has "learned it is important to value and embrace differences -- both seen and unseen. We are flying the 'Pride' flag as an example of our commitment to values of acceptance and inclusion."
*
As is the norm for Cobb, she alleges that LGBT citizens want "special rights" even though it is she and her fellow Christofascists who are seeking special rights. Indeed, if given her way, Cobb would throw the U.S. Constitution and institute a theocratic government. Under a strict definition of the term, some might call Cobb's goals treason.

U. S. Financial Market Lack of Regulation Poisons Foreign Markets

As this Washington Post story indicates (http://www.washingtonpost.com/wp-dyn/content/article/2008/01/22/AR2008012200518_pf.html), the mismanagement and failure to regulate the U. S. financial markets is now causing the export of financial malaise worldwide. Not only has the regime of the Chimperator financial fuc*** over the American public and economy, but he has also exported the mess overseas as well. His "anything goes" mindset which allowed his buddies to make huge profits is now reaping the whirlwind. He truly has to rate as the worst president in U. S. history on numerous fronts. Here are some highlights:

The Federal Reserve today slashed the short-term interest rate it controls by three-quarters of a percentage point, a surprise move meant to keep plummeting stock markets around the world from threatening the underpinnings of the international economy.

A day after stock markets in all major world economies plunged, the U.S. market followed, but suffered much less damage than markets in other large countries. After initially falling nearly 450 points this morning, the Dow Jones industrial average was down 157 points at 10:45 a.m., or about 1.3 percent. In comparison, over the course of yesterday and today, the Japanese stock market fell 9.3 percent. Analysts attributed the relatively minimal decline in the U.S. markets to the Fed's rate cut.

"There is a growing sense of panic among central bankers about the course of the economy and both the widening and deepening of the credit crisis," said David Shulman, senior economist with the UCLA Anderson Forecast. Speaking about 15 minutes after U.S. markets opened, he said: "If the Fed hadn't acted, it would be a lot uglier. But the day is still very young and we're going to have quite a bit of volatility."

Today's declines in Asia were even more severe than those yesterday, and several markets hit multiyear lows. Indian shares plunged so quickly -- nearly 11 percent -- that its stock markets halted trading soon after opening. In South Korea, volatile futures prices prompted the main Kospi market to briefly suspend program selling orders at midday. The Australian market suffered its worst one-day fall ever, while Japan's Nikkei fell 5.65 percent to its lowest point since 2005. It is down nearly 18 percent this year. In Hong Kong, the Hang Seng index was down 8.65 percent today, after dropping 5.49 percent yesterday. It's off 19 percent this year and is 30 percent lower than a peak in late October.

The markets fell as fears spread that massive losses on loans made to U.S. home buyers would cascade through the world financial system. Some of the firms that play important, but usually invisible, roles in the global financial architecture are turning out to be exposed to the downturn in the housing market in such a way that their ability to function is threatened. The companies that insure bond investors against defaults are having to make massive payouts. One, ACA Financial, owes $60 billion that it cannot afford to pay and has been taken over by the Maryland insurance regulator. Its credit rating has been lowered.

Wall Street Bets on an Impending Recession

I came across this Washington Post story (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/26/AR2007112602206.html) after I had done the previous post on the Citigroup job cuts. I guess it is nice to have validation that I am not the only one thinking that a rough ride is ahead for the economy. I still believe that unless something changes quickly to revive the housing market, the recession could be fairly severe.

Of course, the story does not go into how things got to their current status: a largely unregulated mortgage industry that allowed loans to be made to those who should never have been approved for them and on terms that only made sense if housing prices continued to sky rocket. I have yet to see any industry properly regulate itself when quick money is to be made with any downside being left for others to pick up. Perhaps the formerly GOP controled Congress should have worried more about the economy and what was happening in the residential mortgage industry that about what was going on in people's bedrooms. I suspect most rational voters [obviously the worse Christianist wingnuts are not rational] are going to care more about a severe recession than the Federal Marriage Amendment. Here are some story highlights:

Wall Street is betting on a recession. Investors in stocks and bonds are paying prices that indicate they believe a snowballing housing crisis and worsening credit crunch will soon tip the U.S. economy into a recession, analysts said. Many economists, including leaders of the Federal Reserve, don't think things will get that bad, but some say the risk of a serious downturn has risen in recent weeks.

In a view increasingly typical among Wall Street economists, analysts at Merrill Lynch published a research note yesterday with the headline: "We believe we are going to see a recession in '08." Widespread expectations of a recession could be self-fulfilling because of how financial markets and mainstream America are interconnected. If investors are sufficiently convinced a recession is ahead, they would be reluctant to lend money to businesses that want to expand, making it so.

Higher interest rates for risky mortgages, for example, could make it difficult for would-be buyers to afford a home, which could cause prices to drop further. That, in turn, could spur more foreclosures, which could lead financial institutions to further increase rates they charge on mortgages. "These things feed off of each other," Wyss [chief economist of Standard & Poor's] said.

The potential freeze in bank lending could mirror the savings and loan crisis of the early 1990s, a major cause of the 1990-91 recession. "In any recession, you get to a tipping point where sentiment unravels and feeds on itself. Psychology takes over," said Mark Zandi, chief economist of Moody's Economy.com.