the visible hand

it is the theory which decides what can be observed – einstein

Economists say 2008 will be a year to forget

Posted by ecoshift on January 6, 2008

Economists say 2008 will be year to forget – MarketWatch
By Greg Robb, MarketWatch
Last update: 1:26 p.m. EST Jan. 5, 2008

NEW ORLEANS (MarketWatch) — Gathered in this city struggling to regain its footing after Hurricane Katrina, a group of leading economists said the U.S. is getting hit by another damaging storm: the global credit crunch.

Many analysts gathered at the American Economic Association’s two-day annual meeting spoke of a recession as almost a given but differed over how severe it will be.

“The recession is likely to be a serious one,” said Dean Baker, co-director of the Center for Economic and Policy Research.

He estimated losses in prime mortgages will be two to three times the $160-$200 billion hit seen in the subprime sector. This, he said, will lead to large losses at banks and difficulty for Fannie Mae and Freddie Mac.

University of Chicago professor of finance and former chief economist at the International Monetary Fund, Raghuram Rajan, said questions in the media over whether the U.S. economy will fall into recession are really only about semantics.

“We are going to have very low growth in the first two quarters of the year. Whether it is negative or zero, it is going to feel like the same thing,” Rajan said.

But he added that it remains an “open question” whether an even more serious slowdown develops in the second half of the year.

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