Federal Reserve Chairman Ben Bernanke warned Tuesday that the financial crisis has not only darkened the country's current economic performance but also could prolong the pain.
The Fed chief's more gloomy assessment appeared to open the door wider to an interest rate cut on or before Oct. 28-29, the central bank's next meeting, to brace the wobbly economy.
But will that be enough to avert catastrophe? John Ryding, chief economist and founder of RDQ Economics suggests not. In fact, he tells us were already in a recession and he sees two distinct scenarios for 2009 one of which is rather scary.
Scenario One: Recession
"One is that we fix the confidence issue and stabilize the financial markets and we get away with a conventional recession," says Ryding.
"That would mean unemployment at 7% and the Dow down 30% from its peak, which is where it’s trading now."
Scenario Two: Depression
"The other scenario is Depression. The financial fixes don’t come and we spiral into a recession of the kind that we haven’t seen in the post-WWII period," Ryding explains. (That's what he thinks the market is fearing.)
"We could be looking quarterly drops in GDP of 5% at an annual rate and a recession lasting for 2 years or longer. And unemployment could go to 8% or 9% which is something we haven't seen in a long time. And there could be another 2,000 point drop in the Dow."
The Bottom Line: The crisis won’t get better until we can restore confidence in this market.
What do you think. Tell us now.
You can see our entire interview with John Ryding toward the end of the Word on the Street video.