Shaken Consumers, Banks May Stifle U.S. Growth, Extend Slowdown

[marmar]

Shaken Consumers, Banks May Stifle U.S. Growth, Extend Slowdown

By Rich Miller

Sept. 22 (Bloomberg) -- The U.S. economy might be moving from the acute stage of the credit contagion to a chronic one.

Even with hundreds of billions of dollars from Washington to keep them solvent, banks facing the prospect of more loan losses may still curb new lending. Debt-laden consumers look set to rein in spending further as job cuts take their toll. And profit-pinched companies are turning cautious on investing and hiring as the rest of the world slows.

The plan the Bush administration and Congress are racing to enact is designed to alleviate the crisis in the markets rather than stimulate a sluggish economy. ``The fact that we have stepped back from the edge of the cliff doesn't mean everything is wonderful,'' says Michael Atkin, head of sovereign research at Putnam Investments in Boston. ``We shouldn't forget that the economy is not in great shape.''

That puts pressure on Federal Reserve Chairman Ben S. Bernanke and his colleagues to follow up their extraordinary interventions in the markets with more traditional medicine in the form of lower interest rates.

``The Fed still has more rate cuts to do,'' says John Makin, a principal at Caxton Associates LLC hedge fund in New York and a fellow at the American Enterprise Institute in Washington.

The credit squeeze is prompting some economists to lower their forecasts for the economy. Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, now expects the economy to contract next quarter and in the first quarter of 2009. That would be the first recession since 2001. ......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601109&sid=aQ055w2uqXT4&refer=home

[KharmaTrain]

1. This Squeeze Will Get Worse

I see a lot of businesses going into the shitters in 4th quarter this year. The combination of rising prices, lower consumer demand and tight credit will make it difficult for many to keep the lights on. The Housing market will remain extremely tight at credit will be very difficult to find...or one will have to put up a large downpayment or escrow to assure the financing (thus the chance to loose the home). And we haven't even looked at the ticking consumer debt time bomb that was the other part of the credit games of the past 25 years that are now draining the economy.

We're beyond recession, we're into stagflation...

[ixion]

2. and yet saddling "consumers" (i.e. taxpayers) with a trillion + in debt

is going to make things all better.

Yeah. Right. Whatever.