Not if a recession but how bad


Thus, at this point the debate is less on whether the US will experience a soft landing or hard landing but rather on how hard the landing will be, i.e. whether the coming recession will be “mild” or “severe”. That is a radical change of the macro debate relative to a few months ago.

Indeed. Until just a few weeks ago The talking heads on Bloomberg were saying everything is just fine and we’ll get through this little speed bump of a subprime thingee no problemo. But then, darn it, that subprime thingee metastasized and has now spread to commercial real estate and the credit markets at large.

Yet even with that the talking heads almost comically persist in their folly. Morgan Stanley announced yesterday that, oopsie, they lost $9.4 billion last quarter. I guess that speed bump must have somehow morphed into a high speed run off a cliff. But, eternal optimists that they are, it wasn’t more than about 60 seconds after the news was announced that someone on Bloomberg said, so this must be a buying opportunity now for Morgan Stanley, right? Ah, no. Sometimes stock go to zero, as witness Enron.

But more and more those talking heads are getting a bit grim about what’s coming. Which is something that readers of blogs like Calculated Risk, Mish’s Global Economic Trend Analysis, and The Big Picture have known about and been discussing for months.

The combination of a worsening housing recession, a severe liquidity and credit crunch, oil prices well above $90, a retrenchment of capex by the corporate sector, and a saving-less and debt-burdened US consumers being buffetted by a variety of negative shocks is making the recession as the leading scenario for the US economy.

So now the question is now longer if there will be a recession, but rather, how bad will it be.