If some pundits see deflation coming our way while others regard hyperinflation as the biggest threat ever could be debated endlessly. What truly matters is that the majority believes that the economy will enter a death spiral around the end year.

Today, the stocks were pounded as recession fears spread. What else could we expect? The true President Bush’s deficit is set to reach $3 trillion as announced at the end of last week and that Homeownership Plunged At Record Rate since tracking began in 1965. There is more, ‘Focus Property Group, one of the largest developers in Southern Nevada, has stopped making interest payments on $500 million in land-backed loans.

While new regulations to prevent abusive lending has to remain a priority, a crackdown on U.S. subprime lenders is only going to make a bad credit situation even worse because the Americans have basically used debt as income. The big credit contraction is coming…

U.S. debt service load higher now than days of double-digit interest rates … We have taken out so much debt as a society to finance a consumption boom and asset boom…that total interest payments are a bigger drag today than they were 25 years ago when the prime and conventional mortgage rate were both north of 16%,� Mr. Rosenberg said in a research note. This is rather unbelievable. (nationalpost.com/01.01)

Let’s face it: America’s middle classes are no longer coping.

…. The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences….

Meanwhile the biggest joke today was probably Moody’s offers to change debt rating system for complex debt securities that would rely on numbers rather than letters. So there you have it, during all these years as the debt orgy was ever prospering, the people in charge of the economy were disregarding real hard mathematics to make their projections.
Faith in the Federal Reserve will be the last bubble to pop… ouch!