The Spiral

Bad economic news feeds upon itself and in time it builds into a spiral. Home foreclosures cause banking losses, banking losses cause tight credit, thight credit causes more housing losses, more housing losses cause more underwater homes and more underwater homes lead to more home foreclosures. Repeat cycle. This is just a small example of the massive spirals that are building on several levels. They are building on country levels, company levels and individual levels.

Here is a spiral to watch. Unemployment up now to 8.1%, a bit more than expected. Unemployed people are not buying cars, furniture, clothing or anything else other than food. They also cannot pay their mortgage on their underwater home, which leads to more foreclosures, more business losses, and more unemployment. These spirals have the government worried, and they should.

We now have to break these spirals, which is difficult at best. The government has to take on some links in the chain and make sure they do not break, that the spiral does not continue. Otherwise it continues until there is so little left to lose that the spiral simply implodes as there is no place left to spiral. That is not a good way to end it.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2sWlnEIj58U&refer=home

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