According to the Economic Cycle Research Institute, seven out of 10 citizens now believe we are or will soon be in a recession. Minnesota state economist Tom Stinson worries that fewer state residents will buy cars or make other big purchases, now that they have less home equity to draw on. An expected slowdown in spending and the job market lurks behind Stinson’s latest estimate of a revenue shortfall of $373 million in the state budget for fiscal year 2008-09. Other states have the same problems. The leading home price index is at a six-year low, financial services are at a 13-year low, while non-financial services are at a 56-month low, according to figures kept by ECRI.

Other economists think current problems are caused by huge deficits. In University of Minnesota economist Tim Kehoe’s view, hundreds of billions of at-risk home loans (estimates range from $100 billion to as much as $350 billion) represent a small problem compared with a national debt that’s soared by trillions of dollars in recent years. Either way we have both problems now, and 70 percent think we will be in a recession. Here is what we think – the recession of 2001 never ended. It was artificially propped up by inflated mortgages, while the official government postion was “we are in the sixth year of an expansion”. Unfortunately the expansion was not real and spending in Iraq needed something that was real. As the Bush administration believed their own speeches the mortgage market had freedom to do whatever was necessary.

Economists knew of the pending implosion. Ever since accounting scandals at Fannie and Freddie came to light in 2003, lawmakers have been debating how to reform the two agencies, which are considered government-sponsored enterprises. That never happened either.