Contradictions mount in US and world economy in wake of Fed rate cut

Contradictions mount in US and world economy in wake of Fed rate cut: "Robert Shiller, a liberal Yale economist who correctly predicted the collapse of the dot.com bubble, told the panel that “the collapse of home prices might turn out to be the most severe since the Great Depression.” The housing slump would have a major impact on consumer spending, and posed a “significant risk” of recession over the next year, he said. “Low income people will be especially hard hit,” Shiller warned, because they hold a disproportionate number of the subprime mortgages which are now being liquidated. Rising home prices have been the major factor in the steady rise of consumer spending over the past seven years, despite stagnant or declining real incomes. Homeowners extracted an average of nearly $1 trillion a year in additional spending money from 2001 through 2005, through a combination of home sales, home equity lines of credit and mortgage refinancing. One quarter of this vast sum went directly into consumer spending. Now this process is going into reverse. According to a forecast released Wednesday by Moody’s economy.com, more than three-quarters of the housing markets across the US will suffer a decline in home prices in the next several years, and price declines will average 7.7 percent nationally, exceeding 10 percent in 86 of the 379 largest markets. The wo"