Wrong. Wrong. And Wrong.

Pollyannaism has been rampant since the financial world first began to unravel more than a year ago.

First there was the asinine belief -- espoused by central bankers and Wall Street "strategists" alike -- that the problems in the subprime credit market would remain "contained." Wrong.

Then TV pundits, ivory tower economists, equity traders and other clueless observers asserted that the government -- the Fed through monetary policy, and legislators by way of fiscal policy -- would somehow manage to save the day. Wrong again.

And finally, the "experts" started arguing that even if things went sour in the U.S., the rest of the world would still manage to keep on truckin', thus muting the impact of any falloff in demand in the world's largest economy.  Wrong once more.

In reality, the dominoes have fallen more-or-less as anticipated by those who actually looked at the facts and honestly assessed what they meant before the meltdown started. For this group -- and yes, I include myself -- the  developments detailed in the following Reuters report, "Global Credit Crisis Undermining Economy," are not a surprise.

The global credit crisis is continuing to undermine the world economy, putting the squeeze on Japanese exports, unravelling European business confidence and deepening the U.S. housing slump.

Economic data from the United States on Thursday showed the housing market remained weaker than Wall Street's already grim estimations, with existing-home sales tumbling to a 10-year low.

In Europe, key measures of business activity and company sentiment fell more than expected in Germany, France and Italy, as well as in a survey of the 15-nation euro zone.

The Ifo institute's gauge of German business sentiment, based on a survey of about 7,000 companies, suffered its biggest drop since soon after the September 11 attacks on the United States in 2001.

Japanese exports, which are heavily dependent on U.S. demand, shrank in June for the first time in nearly five years and Bank of Japan policy-maker Atsushi Mizuno, said there was a chance that Japan could slip into a recession although he did not expect a deep one.

Thursday's data was also the latest reminder that the malaise in the world's largest economy originated in the U.S. housing market, and the rising inventory of homes for sale does not bode well for the prospects of economic recovery.

"This is not something we are going to snap out of quickly," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati.

U.S. and European stocks fell. The U.S. dollar slid against the Japanese yen but rose against the euro.

Oil prices fell to a 7-week low early Thursday during Asia's trading hours, but by midday in New York, crude had reversed course and turned higher. In volatile early afternoon trading in New York, U.S. crude futures were up $2 at $126.44 a barrel.

Government bond prices jumped in the United States as investors trimmed bets on a near-term rate increase from the Federal Reserve. The 10-year U.S. Treasury note was up 21/32 in price; its yield, which moves in the opposite direction, fell to 4.04 percent from 4.12 percent late on Wednesday. Euro-zone government bond prices also gained.

BAD TIMING IN EUROPE

In the euro zone, signs of weakness could not come at a worse time for the European Central Bank, which raised interest rates earlier this month by a quarter percentage point to 4.25 percent to combat inflation that is double the upper limit of its target and likely to rise further.

Germany's Ifo business climate index dropped to 97.5 in July from 101.2 in June, and was weaker than the 100.0 economists had expected.

If there were not enough gloom for Europe, British retail sales had their biggest monthly fall on record, plunging 3.9 percent and wiping out an almost equally large surge in sales the month before.

Recession risks are rising in Britain, where the housing market is plunging. A Reuters poll of economists on Wednesday put the probability of recession at a significant 40 percent, double where it was at the start of the year.

Spanish unemployment rose to 10.4 percent in the second quarter, much more than expected, as a reeling construction industry eliminated jobs.

In Scandinavia, Danish consumer confidence plunged much more than consensus forecasts to a 16-year low while Swedish unemployment staged an unexpectedly large spike to 8.1 percent in June from 5.9 percent.

CLOUDS OVER JAPAN

Data on Thursday from the world's second-largest economy were also disappointing.

Japanese exports to the United States and the European Union both fell, as did exports to other countries in Asia. That news comes against a backdrop of growing concerns that domestic spending will not be able to carry the torch for the Japanese economy.

In the United States, a surprisingly large number of people sought jobless benefits last week. Some analysts blamed seasonal factors, but the data come in the context of a jobs slump in which employers cut workers for a sixth consecutive month in June.

The Federal Reserve began lowering interest rates quickly after the credit crisis erupted late last year. More recently the U.S. central bank has signalled worries about rising inflation, which could require tighter monetary policy.

Meanwhile, news of further deterioration in the U.S. housing market came a day after the U.S. House of Representatives passed a massive rescue package.

The bill, which is awaiting Senate approval, would let the government extend an emergency lifeline to mortgage finance giants Fannie Mae and Freddie Mac.

Meanwhile, Mexico's annual inflation rose to 5.37 percent in early July, its highest level in more than three years, bolstering expectations that the central bank will raise interest rates to cap soaring food prices.

Comments

[Truesincerity]

And how many bottoms have been called. They are being made fools each time they speak! If they only just look at the facts.

[Beaver]

You forgot Canada, the country supposed to be most heavily dependent on the US economy, 70% export goes to the US. As the old saying goes: US sneezes and Canada is supposed to catch pneumonia. So how's the great North doing? Just great thank you very much.

Residential housing is holding value beautifully (there was never a bubble, except in some hot spots in Alberta due to oil boom), commercial real estate is healthy, exports are holding up well (down to the US but more than made up elsewhere), Federal and provincial governments very much in the black, financial markets are strong and trusted, the healthcare system is chucking along well and people are quite happy on the whole. The country is offsetting negative economic impacts from the US by gearing up to spend massively on transportation, energy and green infrastructure - without going into debt or deficit.

Only Ontario took a hit due to woes in GM & Ford, but the auto industry is in reasonably fine shape because manufacturing by Japanese auto makers are up. BTW, Ontario makes more vehicles than Michigan.

So there's no pneumonia. Canada managed to decouple from the US economically to a greater extent than many thought, even with NAFTA. But Canadians are not decoupled from the US media at all. They see and know everything south of the 49th. And watching Americans twist and turn from their own blunders and hubris is a national pastime.

[Ibod Catooga]

The only bottom I'm calling is Jessica Biel's! Mine!

[dano]

To our Canuck friend above. It is still VERY early in this game. Even
in the US there are some debating if we are truly in a recession. I would
not be so fast to call Canada out of the Northern Woods yet.

[farang]

Yes to all of the Canuck's smugness ( although that was Mulroney under Bush's desk,yes? And tasering seems to also be a Canadian law enforcement amusement, along with police plants pretending to be protesters), but hey, how's the cost of cleaning up the tar sands toxic waste gonna play out?

You aren't immune, you too are just British subjects, awaiting the coming storm....

[Beaver]

Farang:
No smugness, just realist. We don't delude to the point of mass stupidity like you guys. As your post clearly shows. While I'm at it, I've news for you - the empire is over. You might know it but tell Bush in case you bump into this walking disaster of historic proportion. I don't want to insult our pals down south but voting for the Bush gang twice must surely be most stupid mass decision made since the German people voted for Hitler into office. There - enjoy the comparison and try to learn something from it.

Oh the tar sands. No toxic waste - after all they have been mining this stuff for about 40 years and the operation is in the category of technological fine art. But if you still have a problem with tar sands then maybe we Canadians dumb enough to sell 2 million barrels per day to you should just do a little diversion offshore. And watch 6 states from Wisconsin down grind to a halt. Yes I can see that made into yet another reality TV show once the current one on subprime foreclosures start to get boring.

If you think Canadians are British subjects you are truly truly dumb. No wonder the good old US of A is in such a mess. Dumb people makes dumb country. Otherwise I just love you clowns.