This Thing Isn't Over By a Long Shot

From the WSJ:

The weakening U.S. economy has further to fall, according to the majority of economists in the latest Wall Street Journal forecasting survey.

By a 3-to-1 ratio, respondents said the economy is in a recession, and almost three-quarters said the economy hasn't yet hit bottom. "It's hard to say," said Lou Crandall of Wrightson ICAP, because "it doesn't feel like anything we've experienced in decades."

First, I called for a recession about a year too early. I thought we'd be in a recession in the Spring of 2006. So my prognostication abilities are about as sharp as .... the average economist's.

That being said, this thing is just getting started.

Here's the central problem: the Fed is pouring money into the financial system. Yet interest rates are still spiking:



This indicates that financial firms aren't willing to make loans to each other.

That's because everyone is still writing down the value of mortgage paper. And we're going to continue to hear news along those lines for some time:

The total potential losses globally from the credit crunch could top $945 billion, the International Monetary Fund estimated on Tuesday. Losses tied to the housing market could top $565 billion, with the remainders coming from credit cards, commercial real estate and corporations, the IMF said. The current market turmoil reflects weak balance sheets and a general lack of capital.

And the credit crisis is spreading:

Forty-six student lenders have stopped making federally guaranteed student loans, either temporarily or permanently.

Distress in the $330 billion market for auction-rate securities in recent months has rippled into the student loan market, and several states have suspended their college loan programs. The 46 lenders accounted for 12 percent of the federally backed student loan market, according to FinAid.org, a Web site focused on student lending.

Companies including Washington Mutual Inc., Sovereign Bancorp Inc., College Loan Corp., CIT Group Inc., NorthStar Education Finance Inc., HSBC Bank USA and Zions Bancorp have stopped issuing federally guaranteed student loans in recent weeks. And state agencies in Iowa, Michigan, Montana and Pennsylvania have suspended college loan programs.

The major federal student loan program is providing an estimated $50 billion in loans to 6.4 million students in the current academic year.

Don't think it's going to stop there.