Fed Slowing Economy

Watch out everyone. The chances of recession have risen recently. Here’s the New York Times on the Fed minutes in which a slowdown was discussed: Fed Minutes Show Fears of Slowing Economy

The odds of a recession next year sometime have increased. The biggest source of danger is the over-extension of bad mortgage loans by banks during the housing bubble. With house prices beginning to fall year on year, and unsold home inventories rising rapidly the housing market looks very weak for the first time in years. The problem is that house price appreciation was a significant source of spending power for consumers who took our home equity loans to fuel consumption. The rate of draw down of those types of loans is now fading away. With wages weak there is little other than a run up in credit card debt to keep consumption rising.

That’s a recipe for a decline. Looks like choppy water ahead … just in time for the next presidential election.

Another thing for Bush’s successor to clean up.