How Bad Can The Economy Get?

This was from an article written in the WSJ by Mark Gongloff.

A full year into the miserable journey of the credit crisis, the economy and financial markets have come to a crossroads, beyond which lay several possible destinations, not all of them pleasant.

So far, despite bank losses of some $400 billion, a crumbling housing market and oil prices at $130 a barrel, the economy has managed to avoid a deep recession — at least according to the common definition, which is two quarters of negative gross domestic product growth.

But federal tax-rebate checks have supported consumer spending, which drives 70% of the U.S. economy. That jolt will soon fade, potentially leading to a hangover.

A resilient export sector — driven by a weak dollar that makes U.S. goods cheaper and more competitive overseas — has also kept the economy going and lifted the profits of many multinational corporations. But several big overseas economies are starting to feel the bite of inflation and the troubles in the U.S., and their appetite for American goods might wane.

Meanwhile, major U.S. stock indexes remained near bear-market territory despite a big drop in oil prices that sparked an impressive three-day rally. The Dow Jones Industrial Average rose 396 points, ending the week up 3.6%. The Nasdaq and S&P 500 also rallied last week.

As heartening as last week’s turnabout in oil prices was, however, the economy is still a long way from healthy. And there could be a lot more stock-market pain to come.

I would expect the WSJ to paint a fairly optimistic view of the economy, but if you live on Main Street in Poodunk, USA–the rosy is just not gonna explain why you are losing the house and cannot feed the kids.