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Friday, January 25, 2008

Recession: free fall?

Many economists are predicting a short, shallow recession. But there's also a significant risk of a more serious economic decline.

Mark Zandi, Chief Economist of Moody's Economy.com says that policy makers need to be more aggressive to stimulate the economy.


A bear market and fears of a recession are wearing on small investors who are focused on the long term.

The sputtering U.S. economy has gotten everyone from the financial markets to the Federal Reserve to Congress in a panic.

But here's a disheartening message for those already worried about economic growth -- it could get much worse.

Most economists who believe a recession is already here or at least near are looking for a relatively short and mild downturn, perhaps lasting only two or three quarters.

But many of those same economists say they also can envision a worst-case scenario where spending by consumers and businesses falls off sharply, unemployment heads higher than normal during a typical recession and housing and credit market problems worsen.

"I can easily imagine [the economy] going into a free fall," said Dean Baker, the chief economist for the Center for Economic and Policy Research. "The danger is that housing prices continue to tumble and accelerate, people's ability to pull out equity will evaporate, and you'll see a serious downturn in consumption."


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