Today's lousy (though not terrible versus what's usually seen in a recession) jobs report is further evidence that the worst nightmare of Ben Bernanke and the Federal Reserve seems to be coming true. Fed economists call it an "adverse feedback loop." It goes like this: The plunging housing market creates a credit crunch, which drags down the economy and further weakens the housing market, and so on and so on. Rinse and repeat.
If so, look for increased pressure on Washington to more directly aid homeowners to support housing prices and stem the deluge of foreclosures. Liberals have been for this for some time. Bigger government is never a surprise coming from those folks. But more and more conservative economists I talk to are cooking up plans for the Son of the Mother of All Bailouts.
In the Wall Street Journal yesterday, former White House economist Glenn Hubbard offered a $400 billion to $600 billion plan through which the government would refinance all U.S. mortgages into 30-year fixed mortgages at 5.25 percent through Fannie and Freddie. And just the other day, I talked to another prominent conservative economist who suggested a somewhat similar plan. I asked whether all these plans didn't smell of socialism. The economist's answer: "I think that bridge has already been crossed."