For months, economists have debated whether the United States is headed toward a recession. Today, there is no doubt. President George W. Bush can tout his $150 billion economic stimulus package, and the Federal Reserve can continue to cut shortterm interest rates in an effort to goose consumer spending. But those moves are unlikely to stop the economy’s slide. The severe liquidity and credit crunch from the subprime mortgage bust is now spreading to broader credit markets, $100 barrels of oil are squeezing consumers, and unemployment continues to climb. And with the housing market melting down, emptypocketed Americans can no longer use their homes as ATMs to fund their shopping sprees. It’s time to face the truth—the U.S. economy is no longer merely battling a touch of the flu; it’s now in the early stages of a painful and persistent bout of pneumonia.

Meanwhile, other countries are watching anxiously, hoping they don’t get sick, too. In recent years, the global economy has been unbalanced, with Americans spending more than they earn and the country running massive external deficits. When the subprime mortgage crisis first hit headlines last year, observers hoped that the rest of the world had enough growth momentum and domestic demand to gird itself from the U.S. slowdown. But making up for slowing U.S. demand will be difficult, if not impossible. American…

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Video: The Coming Financial Pandemic

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