Economist Says a Weakening Economy is Coming and may Impact ARM

An economist with the leading trade credit insurer in the country says that the current housing market situation, combined with soaring energy prices, will have strong consequences for the U.S. economy well into 2009.

Daniel North, chief economist with Euler Hermes ACI said in an interview on Bloomberg Television yesterday that the current housing slump shows no signs of immediate relief. "I think that we could see the deflating housing market bubble hurting the economy into 2009," he said.

An inverted yield curve occurs in an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is fairly rare and is considered to be a predictor of economic recession.

“You cannot get away with all three negative factors working without a significant economic slowdown or even a recession,” said North.

North said that weakness at the consumer level could result in difficult times for ARM companies. “Broadly speaking, we see a weakness that will go down the credit chain to include the consumer,” North said. “Lenders will be less willing to grant credit on the consumer level and consumers could have a harder time paying on accounts, whether current or in collections.”