'Economy flirts with disaster?'

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Sitting at breakfast with a few friends reading the Sunday newspaper, we all noticed this headline in The Springfield Republican: "Economy flirts with disaster."

"Flirting with disaster?" one of them asked. "I'm pretty sure the economy is plastering on whoreish makeup, with a cigarette dangling from its mouth and a bag of condoms in its right hand, leaning up against a brick wall at the street corner of a bad neighborhood with the wind billowing up the runs in its stockings."

Hmm.

My friend's pessimism about the economy is pretty much in line with how most people are feeling. The daily Consumer Index recently fell to a record low -- for the third time this month. 67% of Americans rate the economy as poor and only 8% rate it as excellent -- perhaps the same 8% that has a dry sense of humor. According to a Reuters-University of Michigan survey, just under two-thirds of consumers expect that this downturn will last more than five years.

To economist Robert Shiller, these dire prediction are most troubling because they increase the odds of a depression actually happening. In a column in the New York Times, he writes that "The Depression narrative could easily end up as a self-fulfilling prophecy," as consumers spend less and investors invest less.

An interesting tidbit: The phrase "self-fulfilling prophesy" was coined by sociologist Robert K. Merton whose son Robert C. Merton was on the board of Long-Term Capital Management -- a hedge fund that served as an early example of the havoc that structured finance could wreak on the economy.
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