Ledbetter is essentially basing his argument on trends, but as every prospectus warns, 'past results are no guarantee of future gains.' The fact that the length, breadth and duration of past downturns has shortened since the Depression does not tell us one thing about what might happen this time around. Instead, we need to look at where the cracks are in the economy and then try to figure out what those portend.

Ledbetter asserts that the fact that our economy has moved away from agriculture and manufacturing and toward services means the blow will be cushioned. Not necessarily!

The FIRE sector (Finance-Insurance-Real Estate) makes up some 21% of our GNP and how are things going in that neck of the woods? Well, one LA Times blogger suggests that nearly $6 trillion in house wealth will soon evaporate <link> . Meanwhile, Dr. Housing Bubble predicts that we are far from seeing the bottom of the housing crisis; that it will, in fact, accelerate. <link> . And as more and more homes get dumped into the market, the excess inventory will just continue to make the mess worse for years and years to come. <link> . Is it any surprise that jobs for real estate brokers, mortgage lenders, bankers and home construction and all those ancilliary jobs are getting slashed and will likely continue to shrink?

Let's not forget that almost 40% of GDP growth since '01 has been due to the booming housing market. That prop is shot.

To believe this recession will be short and painless is to assume that the credit crunch has been contained. But there's more!

Much of the boom in consumer spending came from folks being able to use the equity in their homes as a personal ATM. They can do that no more. Household debt is at record levels and credit cards will only go so far before that spigot gets shut off as well. Meanwhile, median household income has been stagnant for the past five years. Without the wherewithal to spend, consumers won't lift us out of any recession. In fact, their means is actually shrinking.

The well-compensated may be able to shrug off the rising prices of food, fuel and heating/cooling, but families at the margins certainly can't. In fact, the prospect is for further increases. <link> .

Rising fuel costs pinch in many ways. Travel and tourism may be severely impacted -- and in the not-too-distant future. <link> .

What we are seeing is the double-whammy of a credit crunch that's worse than the S&L fiasco of the late 80's combined with the rising commodity prices that may make that which we experienced in the 70's seem tame. The economy is being squeezed in two directions at once. And the fiscal policies of the present administration have taken away a large measure of our government's ability to remedy the situation.

What we're more likely to see is an L-shaped graph of our GDP, not a crisp V.

I think you overrate the "Housing Crisis". That seems to be the king pin every doom and gloomer hangs their "hopes" on (the eagerness to which they point out the impending collapse makes it seem very much like hope).

After the media scare about the so called housing bubble, locally property values declined by a small amount. Now that a good 6 or 7 months have passed prices are on the rise again, following the same trend they've been on for 20 to 30 years. The huge leaps are gone, thankfully, but the rapid declines never appeared.

I question your sources, due to their perceived conflict of interest in the subject. But that does not mean there aren't deep flaws in the housing market as a whole.

Know what? I don't care. I just want someone to hire me, 'kay?

Where, oh where, have prices risen, besides modestly in the Charlotte area? Every place else has shown declines. And Yale Prof. Robert Shiller (of the Case-Shiller index) predicts even more in store.

I'm not pinning my 'hopes' on any 'doom-and-gloom' scenario. Far from it! But I don't see much cause for optimism.

The housing market is just one aspect of the credit crunch affecting world financial markets. But here in the States, there are rising rates of defaults on credit cards, auto loans, home equity loans, all adding to the problem. And all that, with rising commodity prices thrown into the mix, says we're facing a set of circumstances unlike any previous recession. It's that one-two punch of credit crunch/solvency issues and soaring commodity prices that make this situation different from prior recessions.

And if you don't get hired... or can only find PT, occasional employment... would you care then?

The third link in your third paragraph (on the FIRE sector) I found to be especially information-rich.

18.6 million vacant homes in America!

And we still have people in denial about the seriousness of the problem!

Your welcome Leroy... and great to have you back!

It is still getting worse. The news in our area (Midwest) has been reporting on how families are selling heirlooms and their prized possessions in order to be able to buy food and gas. The pawn shops in the area report that incoming goods is skyrocketing, with people bringing in items in exchange for money to fill their tank with gas for the week. And only about 50% return to reclaim their item, lower than their normal rate.

People are hurting, but they are now to the point where they are selling off things to keep up their standard of living. When the possessions are finally all gone, then you will see the worst begin to happen.

Thank you for your post dbashaggy. People in the kind of circumstances you cite, who live at the margins, are the proverbial canaries in the coal mine.

Everyone talks about how badly people are hurting... then why is it that whenever I go to a restaurant on Saturday night, I still have to wait 2 hours before I can get a table?

No one will ever get an ounce of sympathy out of me for high gas prices. If gas prices affect you so much, you shouldn't be driving. Try saving the environment and ride a bike. Or trying living a reasonable distance from your work.

...I'm still waiting for that to be affordable.

As it is, even renting near my workplace would cost more than the $45 a week I pay for gas on average. Buying a place? the cheapest and smallest are still in the >$200k area.

Which is the upside of all these problems, actually. Maybe eventually it will become cost effective to live near work.

In any case, you probably live around rich people!

Eigenvector, I think that people use "housing crisis" when they really mean "credit crisis", because it points to the one part of bad debt where people feel they're entitled to sympathy. The US has been living on credit for well over two decades, starting at the top (Reagan's deficits) and dripping to the bottom (household negative savings). The problem is that money was lent to people that could never pay it back, or at least not without seriously hurting their standard of living. This increase in "risk tolerance" in the financial sector gave the US a one-time boost in GDP (a long one, but a one-off nonetheless).

But there is a limit to this spending spree. It could be that this is the point where the US has to start living within its means, i.e. no more expansion of consumer credit and government debt (not just the federal government) over and above the GDP growth. Perhaps even start paying back some of the outstanding debt too.

Will that hurt the economy? You betcha.

Is it going to happen now? Who knows. When junk bonds deflated, stocks bubbled up. When stocks deflated, housing picked up. Perhaps there's another bubble to make the party last a bit longer.

Watch the US's trade balance: when it starts to go positive, the US will finally have started to pay back its international debtors.

Watch the national savings rate: when it goes significantly positive, Americans will have started owing up to their personal responsibilities.

Watch the federal and state budgets: when they stop bleeding red, politicians will have finally stepped up to the plate.

FirstInLastOut,

Right now, this is most hurting those at the low end of our economy; those who wouldn't have gone to a restaurant with a wait in the first place and those who can't make their mortgage/auto loan/credit card bill payments. The troubles are not proceeding at the velocity of the Great Depression... probably because the Fed has turned itself into the financial shit magnet of the world, willingly accepting as collateral assets that aren't worth a damn from banks/investment houses that have serious solvency issues.

As for who lives where and commuting distances... our whole economy has been based on the expansion of suburbia and has literally been fueled by cheap fossil fuels. Nature, it seems, is taking away those punch bowls... and nobody's job will be insulated from the consequences.

Omoide,

Point well taken.

Endorendil,

Thanks for your reply. You're right about the fact that the credit crisis is broader than the housing crisis... in fact, it is teetering on a solvency crisis. But the worst of the housing crisis is by no means over.

As the links indicate, the pain is shifting upwards to Alt-A and even prime mortgages as housing values continue to plunge. And banks holding these upside down assets will have to set aside more capital to compensate for the losses. Citi Bank, in essence, had to take out an 11% loan from the Dubai sovereign wealth fund to shore up its balance sheet. What'll they do when the next round of losses comes?

As for what it will take to dig us out of this whole, all I can say is I agree... and the consequence will be a huge reduction in the American lifestyle. It's inevitable.