- Woman sleeping in car accused of attacking Cape officer (7/26/16)13
- Seeking new history: Centurion Development buys former Woolworth building at 1 N. Main St. (7/28/16)5
- Prosecutor says shooting by state trooper was justified (7/24/16)15
- Cape resident gets seven years in prison for shooting at man (7/26/16)1
- Former Scott City mayor refutes claims made about loss of curbside recycling pickup (7/26/16)
- Burglary of trailer leaves its residents homeless (7/27/16)4
- Golden Corral coming to Cape; may hire 100 workers (7/21/16)10
- Police: Child's video revealed stepfather's abuse of sibling (7/28/16)3
- Foot plots provide habitats and nutrition to attract wildlife, grow populations (7/18/16)
- City may spend extra park tax money on Cape Splash, skate park, other projects (7/25/16)10
Unfolding credit crisis seen as top economic threat
WASHINGTON -- The cascading fallout from the subprime loan crisis, barely a cloud on the horizon a year ago, is now viewed by experts as the economy's gravest threat.
In a survey being released today, 34 percent of the members of the National Association for Business Economics ranked the financial market turmoil from those loan defaults as the No. 1 threat to the economy over the next two years.
That compares with 18 percent from an August survey, when the most serious threat was seen by 20 percent of the economists as terrorism and the conflicts in the Middle East.
A year ago, the credit crisis did not even register as a chief threat.
The latest survey found that 18 percent of association members listed excessive debt held by households and businesses as the top problem.
The questioning of 259 economists took place during the first two weeks of February. Events since then have underscored the credit crisis problems.
On Friday, the Dow Jones industrial average plunged by 315.79 points. The decline resulted from a combination of grim economic news, including a new estimate from UBS Securities analysts that the financial system losses from securities backed by mortgages and other debt would total $600 billion. That far surpassed the $400 billion that many economists projected until recently.
At the heart of financial institutions' problems are securities backed by subprime mortgages. They have gone into default at record rates because of the housing market's steep slump. These loans were extended to borrowers with weak credit histories.
A separate 49-member NABE forecasting panel recently raised its expectations of a recession, with close to half thinking a downturn will start before year's end.
But 55 percent of the forecasting panel still thinks a downturn can be avoided with the help of an $168 billion economic aid plan and aggressive interest rate cuts by the Federal Reserve.
But the policy survey highlighted the bind the Fed finds itself in. Some 10 percent of respondents said inflation was the No. 1 economic problem, a rating that put it behind worries about subprime mortgages and debt.
The Fed has taken on the credit crisis and the accompanying weak economic growth by cutting interest rates. But to fight inflation, the Fed would have to raise rates. It cannot battle both threats at the same time.
In congressional testimony this past week, Fed chairman Ben Bernanke signaled that the central bank believes weak growth is the biggest threat at the present, boosting chances of an additional rate cut when the Fed meets March 18.
The new NABE policy survey found that only 48 percent of those questioned believed the Fed's policies were "about right." That was the lowest reading in the past two years. It compares with 72 percent who felt the Fed was doing a good job in the August survey, taken before the Fed started cutting interest rates.
Of those unhappy with Fed policy, 34 percent felt the central bank was lowering rates too much. Some 13 percent felt it was still being too restrictive and not cutting rates fast enough.
The new survey was taken after the Fed's January cuts in the federal funds rate of 1.25 percentage points, the biggest one-month reduction in a quarter-century.
Ellen Hughes-Cromwick, the president of NABE and the chief economist for Ford Motor Co., noted that the 34 percent who believe the Fed is being too stimulative and thus raising inflation risks had more than tripled from the past survey.
She said this reflected the concerns many economists have about the threat inflation poses, with crude oil prices hitting records above $102 per barrel and food costs rising. Both consumer prices and wholesale prices jumped sharply in January.
In his testimony last week, Bernanke said Fed officials were watching inflation developments closely but still believed that the slowing economy would dampen inflation in the months ahead.
On other topics, the NABE survey found only 35 percent of respondents ranked the government's budget policies as "about right," compared with 45 percent in August. That probably reflects projections that the budget deficit could hit all-time highs this year and next.
Economists retained their support for free trade: 79 percent said they viewed greater flows of goods and capital as having a net positive impact over the next decade. But 62 percent felt that sovereign wealth funds, government-controlled investment vehicles, should be more open about their operations.