No More Shoes, Please

October 7, 2008

There was a time, after July of '07, when everyone was waiting for the next shoe to drop. But once Lehman fell, new shoes have been dropping everyday. The pundits who long held that the US economy would stave off a contraction suddenly started talking about a prolonged recession or even a depression, in some scenarios, leaving investors and marketwatchers battered and whiplashed.

I’m not even going to pretend to know the solution, but in speaking with the experts, it’s clear there won’t be any quick fix this time around – bailouts, interest-rate cuts or anything else be damned.

“There are so many excesses that the economy is going to have to work through,” according to Richard Moody, chief economist and director of research at Mission Residential.

In a call with him last week he further described that the credit markets are clogged, housing needs to be stabilized and the banking system needs to be cleaned up. “What makes this recession deeper and more serious than the last downturn, is that the financial system is at the root of all of the problems,” he said.

Moody, for the record, is forecasting a contraction to the GDP in the fourth quarter and the first quarter of next year, with just slight growth throughout the rest of 2009.