By Lawrence Summers
Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability.
Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.
Several streams of data indicate how much more serious the situation is than was clear a few months ago.
First, forward-looking indicators suggest that the housing sector may be in free-fall from what felt like the basement levels of a few months ago.
The remainder of this column can be read here. Debate from our guest economists appears below.
