Economy: More Yeech!

US News & WR editor Mort Zuckerman warns that a "credit contagion" will force a long-term workout of bank balance sheet problems, thus stalling economic recovery; his two-pager is chock-full of depressing detail.  Hudson Institute scholar Irwin Stelzer sees recession in our future, in marked contrast to his earlier optimism.  Economist Judy Shelton, who in 1989 predicted the economic implosion of the Soviet Union, says (rightly) "It's the dollar, stupid!"  She harks back to the rules-based monetary system created in 1944 at Bretton Woods, demolished by President Nixon in 1971; since then, devaluing a currency for trade advantage is no longer seen as cheating by many leaders.

Newsweek columnist and foreign policy maven Fareed Zakharia reports that overseas observers are petrified that the Democrats will kill free trade, if they win; both Obama and Hill sang the "kill NAFTA" gospel in Ohio.  Hudson Institute scholar Rod Hunter echoes this theme.  He points out that any one of the World Trade Organization's 151 members can block a trade deal, and that Hill & Obama don't support greater free trade with allies South Korea and Colombia--both are in America's national interest.

WSJ columnist Holman Jenkins fingers arcane accounting rules (aren't all accounting rules arcane?) as a culprit contributing to the subprime mess; specifically requiring institutions to regularly "mark to the market" assets that they re carrying, without intent to liquidate, can force fire sales and damage the holders.  The WSJ editors blast Fed Chairman Ben Bernanke for pushing the banks to write down assets, warning that other borrowers who could work out their loans will instead now be motivated to await further pressure on banks.

Economist Lawrence Lindsey testified before the Senate yesterday, on how to fix the home mortgage market.  He offers a historical perspective, beginning with the creation of the mortgage market in the late 19th century, and then notes that subprimes are only 5 percent of the housing market, but that all homeowners are affected by today's troubles.