Slumping housing. Tightening credit. Shaky stocks. Spiking oil prices. Whatever adjectives economists attach to current conditions, the forecast seems to be the same: a financial storm is threatening our pocketbooks and savings. Even the R word—recession—is getting airtime.
True, we’ve been here before. Through terrorism, war, even Katrina, the economy has shown its resilience, says Lakshman Achuthan, managing director of the Economic Cycle Research Institute, one of the nation’s leading forecasters. “A shock alone won’t cause a recession if the economy is otherwise strong,” he notes. But here’s the rub: “With the housing slowdown and subprime mess, this is the first time in a long time that we’ve had the combination of a big shock and an economy showing real signs of weakness. That combination is a recipe for recession.”
What changed? In brief, your home lost value. The air began escaping from the housing-price bubble in 2006, pressuring millions of homeowners who’d wagered that rising real estate or their own income gains would keep them ahead of their precariously high debts. Then it turned out that mortgage lenders had encouraged too many of those bad bets—and that still more financial institutions owned a piece of the problem because they’d purchased securities based on these risky loans. By last July, the ripple effects from mortgage losses hit big banks, and the stock market began to seesaw downward.
Join Jenny Craig 
