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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: ild who wrote (61480)	5/19/2006 5:41:11 PM
From: CalculatedRisk	Read Replies (2) of 110194

I'm hoping for some sort of soft landing ... I know, hope is for dopes<G>. I agree ... it seems likely that the slowing housing market will take the economy into recession. There are too many possible negative feedback loops: 1) as housing slow, jobs will be lost - and lost jobs means houses need to be sold. Arizona: Housing decline triggers layoffs azcentral.com California Construction Employment Falls calculatedrisk.blogspot.com 2) as housing slows, those with ARMs and little or no equity will start feeling the pain. That means rising foreclosures, and more housing inventory, and lower prices, and more people in trouble. 3) as housing slows, consumption will fall as homeowners borrow less (the infamous MEW - Mortgage Equity Withdrawal). As consumption falls, the trade deficit will fall and there will be less Foreign CB money to invest in US treasuries. So rates will rise ... causing housing to slow more. Feedback loops are scary in economics. Any or all of these could make a bad situation much worse.

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