What does a rapidly deteriorating U.S. housing sector have to do with the global economy? Answer: everything. The question was asked in the Rick's Picks chat room yesterday, so perhaps it's a good time to consider the implications. Let's begin by acknowledging that the housing market is suffering not from a touch of flu, nor from a more serious malady that can be treated with powerful drugs, but from pancreatic cancer. And it doesn't take a specialist to see that ominous shadows on the X-ray are beginning to overwhelm the host. How do we know this is so? For one, even the optimists, taking their cue from shell-shocked home builders and a wave of high-profile bankruptcies in the lending business, are no longer trying to buck us up with feeble speculation about how and when the distress might end. Rather, they seem to be bracing for still worse news ahead, uneasy because there is no way to tell how much worse things might get. Keep in mind that these are the same guys who a year ago�six months ago�three months ago�assured us that the bottom was in. Now, evidently not wanting to further embarrass themselves, and having run out of evidence to buttress even the most timidly upbeat outlook, they've gone practically mute. Rally or Else� More immediately troubling is that credit spreads have begun to widen dramatically, signaling that risk is once again a concern to investors after many years of blithe indifference. If so, the cure of higher real rates that awaits us will be like chemotherapy ' toxic enough, perhaps, to kill the patient. The situation is dire, since there are virtually no buyers for subprime mortgage paper right now, and debt markets are getting increasingly nervous about it. The central banks of Europe and the U.S.
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