Merrill Lynch economist equates the recent credit massacre to the market effectively tightening on its own what is the equivalent of 5 Fed Rate hikes.... yes, 5. Keep in mind, we have not had a consumer-led recession in the last 16 years. 2001 was a business-investment bust that remained mild because the consumer (70% of GDP) kept spending.
This interest rate ramp-up is very scary prospect as this tightening has lagged effects that will play out in economic activity in a few months time -- not now. This future news could erode confidence and spiral into something more serious. I am not saying a recession is inevitible -- only that the Fed better get its act together soon and act very aggressively when it does. Risking a recession when inflation is really not that high relative to previous economic expansions would be a serious mistake.
Here are a couple of links:
http://bp1.blogger.com/_5h-SWVGx6Ms/...sion+Risks.png
http://bp3.blogger.com/_5h-SWVGx6Ms/...this+point.png
http://bp2.blogger.com/_5h-SWVGx6Ms/...ity+vs+GDP.png