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Contrary to the optimism of some shipping executives, near-term prospects for the U.S. economy might not be so rosy. Daniel C. North, chief economist for global accounts receivable with Euler Hermes ACI, is worried about the ramifications of the recent collapse of the housing bubble. He sees parallels between that situation and the collapse of the stock market bubble in the 1990s. Both were caused by actions of the Federal Reserve Bank. The housing collapse, North says, "shows all of the same characteristics, including strong evidence already that an economic contraction is upon us. If history is any guide, it is likely to get worse." According to North, the two events have four, and possibly five, steps in common. In both cases, the Fed held monetary policy steady for some time, before raising the federal funds interest rate to slow the economy. The asset market continued its rapid ascent. The Fed responded with an even higher federal funds rate. The market bubble then burst and deflated, causing assets rapidly to begin losing value. And, in the case of the stock market bubble, the economy quickly started to contract. Now there are signs that the housing market bubble will have the same effect. If it continues on the same path as before, "we would expect to see conditions such as slowing GDP and job growth, as well as other negative indicators," North said.
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