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    • Bernanke and the Beast: Beware the MNOG [view article]
      The giant gorilla that can spoil the party is Housing. At precisely the time when family balance sheets are being stressed, we have the dual negatives of rated credit-based home financing contraction and massive disappearance of "equity" in homes and other real estate which has fed the consumer spending spree of the last several years.

      The danger is that Fed actions designed to restrict certain types of lending will be over-interpreted by the lending community and investors at large, causing a major contraction in credit availablity at exactly the wrong time.

      If consumers become even more frightened about the future and pull in their horns further, effective demand will be quashed and a real, serious recession (GDP loss of 5% or more) could result and there will be little the Fed can then do to prevent it.

      The key here is not to allow political presssures to force actions that will result in causation of the very phenomena you're trying to prevent. We're not very good at that in the U.S.       Mar 07 12:16 PM
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