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Defaults Bigger Threat for U.S. Economy than Terrorism: Poll

The risk of massive defaults on subprime mortgages and heavy debts now poses a bigger threat to U.S. economic prosperity than terrorism, a panel of U.S. business economists said on Monday.

"The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy," the National Association for Business Economics said.

The conclusion was based on a survey of 258 NABE members conducted between July 24 and Aug. 14 and updates one done in March.

Only 20% of members said terrorism was now their top concern, compared with 35% in March.

"Meanwhile, 18% of those surveyed pointed to the effects of the subprime debacle as their biggest concern, and the related issue of 'excessive household and/or corporate debt' was cited by another 14%," NABE said.

For all the concern about current conditions in mortgage markets, NABE members remained upbeat about the longer-term outlook for the housing sector. (Home sales fall for 5th straight month.)

"The five-year housing outlook remains largely positive," the survey said. While 42% thought housing prices will be flat over five years, another 41% predicted they will rise compared with only 16% who foresaw a price drop.

A growing number of NABE members now see the U.S. housing boom of the early 2000s, when prices were shooting higher, as a credit-induced bubble. Comparing findings now with two years ago, NABE said 29% of members feel the boom was a "serious national bubble," up from 14% two years ago.

While about 60% of NABE members approved regulators' moves to tighten mortgage lending rules, more than 90% considered they were "too late" in doing so.

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