Vicious Circle

Vicious Circle
Jason Grow

1. Government takeover of Fannie and Freddie does nothing to cure the fundamental problems: Lenders are hobbled by losses, households have too much debt, and there's a record overhang of unsold homes.

2. The credit crunch and falling housing prices lead to weak consumer spending. Employers cut more jobs and business investment. Without work, households reduce their spending, which leads to even more job cuts.

3. Global investors abandon U.S. investments, figuring the U.S. government will try to escape its debt burden by inflating the currency. The Federal Reserve jacks up rates to defend the dollar, worsening the recession.

    Before it's here, it's on the Bloomberg Terminal.