Notes on the Economy

I was pleased to see that Fed Chairman Ben Bernanke is talking about cutting interest rates to avoid a recession. Signs of an economic slowdown are everywhere.

The housing market, in particular, looks to be in deep trouble. 21 percent of subprime mortgage holders are 90 days or more delinquent. Here in Northern Virginia, home prices continue to fall. Consumer spending over the holidays was down significantly. Gasoline prices are up. I read an article over the weekend that things are so bad in Detroit that portions of the city are returning to nature and prairie. Most Americans feel that a recession is coming, if we are not in one already.

Traditional economics says business cycles are inevitable, but one can cushion the blow with additional government spending or reducing taxes. Taxes are unlikely to be reduced in this Congress, but I think we can expect some action by Congress on the housing front, perhaps along the lines of additional liquidity.