Shape and length of the US recession

The shape of US recession
Published: Sunday, 20 April, 2008, 01:30 AM Doha Time
By Nouriel Roubini

"I expect a longer and deeper U-shaped recession, lasting at least 12 months and possibly as long as 18 months –- one of the most severe US recessions in decades – because today’s macroeconomic and financial conditions are far worse...

First, the US is experiencing its worst housing recession since the Great Depression, and the slump is not over. Construction of new homes has fallen about 50%, while new home sales are down more than 60%, creating a supply glut that is driving prices down sharply – 10% so far and probably another 10% this year and in 2009.
Already, $2.2tn of wealth has been wiped out, and about 8mn households have negative equity: their homes’ are worth less than their mortgages. By 2010, the fall in home prices will be close to 30% with $6.6tn of home equity destroyed and 21mn households – 40% of the 51mn with a mortgage – facing negative equity.
If owners walk away from their homes, credit losses could be $1tn or more, wiping out most of the US financial system’s capital and leading to a systemic banking crisis.

Second, in 2001, weak capital spending in the corporate sector (accounting for 10% of GDP) underpinned the contraction. Today, it is private consumption in the household sector (70% of GDP) that is in trouble.
American consumers are shopped-out, saving-less, debt-burdened (136% of income, on average), and buffeted by many negative shocks..."