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20 Oct 2007 10:44 am

Is A Recession Looming?

Clive Crook provides some sobering analysis:

The dollar's gradual decline -- welcome in itself, as part of a needed adjustment of international economic imbalances -- creates a background of steady inflationary pressure. The currency's slide threatens at any moment to become a sudden plunge, and if that happens the Fed's duty to guard against inflation will conflict with its desire to stabilize output and employment. An oil price that now stands at nearly $90 a barrel does nothing to ease the Fed's inflation worries. And another big complication is the risk that what may start as a mild recession will reinforce itself -- again through the housing market. Distressed debtors and foreclosures are already on the rise and the economy is still strong. What would a downturn do to those housing market numbers, and how would they then feed back on the broader economy?

If the economy slides, the prospects for the Republicans next November seem to me to come close to dire.

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