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Continuing Recession

Douglas McIntyre reports that a recent Wall Street Journal poll found that nearly two-thirds of Americans believe the economy has yet to hit bottom, a sharply higher percentage than the 53% who felt that way in January.  A growing and vocal minority of economists believes that there will be a double-dip recession primarily because of the intransigence of high unemployment and the rapidly faltering housing market.  

A double-dip recession would result in the price of housing continuing to fall, at least in the areas that have suffered the greatest reduction in home values.  

During the 1982 recession, the jobless rate was over 10% for over 20 consecutive months and reached 10.8% for two months.  During this period, the manufacturing base had not been destroyed.  The economy is arguably worse than it was in 1982.  

Consumer confidence hit an all-time low in February 2009 and the auto sales will probably soon drop again.  Annual car sales dropped almost 6 million dollars from 2005 to 2009.

The rise in the deficit and a rapid increase in the American national debt would cause concern among the capital markets investors who purchase U.S. Treasuries.

The effect on most of the financial services industry would be catastrophic, particularly at the regional and community bank level where a number of home and commercial real estate loans are held.  The FDIC would be forced to borrow money from the Treasury to cover bank closings.  The number of failed banks could reach the level of the savings and loan crisis which over 700 banks and mortgage lenders were shuttered.

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