Monday, December 25, 2006

The "anti-Goldilocks economy"

by Bill McBride on 12/25/2006 11:58:00 PM

From the NY Times: An Economy of Extremes

Economists have long waxed lyrical about a “Goldilocks economy”— one that is not too hot, not too cold.
The “just right” economy is not often achieved, of course, but lately this bedtime story has taken a particularly tricky turn: it is both too hot and too cold.
Lombard Street Research, a British economic forecasting firm, recently dubbed the American economy the “anti-Goldilocks economy.”
Too hot and too cold - definitely not "just right". The NY Times presents several differing views on the impact of the housing bust on the general economy. However ...
There is one crucial weakness to all the forecasts ... Part way through the bust of perhaps the strongest housing boom on record ... Nobody has ever seen how a situation like this unwinds ...there are enough uncertainties to warrant talk of a recession.
“If housing is as unhelpful on the way down as it was helpful on the way up, we will get a recession,” Mr. [Allen Sinai, president and chief global economist at Decision Economics] said.
Even Fannie Mae is upping the probabilities of a recession:
“We’ve increased the probability of a recession in our forecast to 35 percent,” said David W. Berson, chief economist of Fannie Mae.