It ... is all too easy for easy money advocates to see a recession coming and rationalize low interest rates. ... [But] I am skeptical about the argument that the subprime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy.
Where to begin? Sure, housing construction won't drop to zero, but housing starts have fallen from 2 million in 2005 to just 1.3 million (annual rate) this August, dragging down the economy. And then there's the slight detail of falling house prices and negative payroll growth.
It's amazing how many people are still in denial about the severity of the housing-led threat.