The always illuminating Congressional Budget Office provides this calm but sobering overview of the trouble in America’s housing market and the effects it could have on the broader economic neighborhood.
CBO seems to doubt that the bursting of the housing bubble will pull the economy down into recession — but admits uncertainty is running high. Because a significant part of the economic damage is pyschological, consisting of a loss of confidence among businesses and consumers, its dangers are hard to predict.
I’d add that the political timing — with an intense campaign season just beginning — further aggravates this psychological risk. An election increases uncertainties and guarantees that even more economic humbug than usual will be slung by both sides in the months ahead. Some of the rhetoric will make current conditions out to be worse than they are, and some will warn of exaggerated economic disasters if the wrong side prevails. Nothing about it is likely to build confidence in the short run.
Here are some thoughts on other highlights of the CBO analysis: