"A Subprime Outlook for the Global Economy."

As that suggests, he's less than sanguine about the economy, mostlybecause he sees real trouble ahead as asset-dependent U. S. consumersstruggle to negotiate a post-bubble adjustment that's bound to stifletheir insatiable yen to consume. And he doesn't buy the widely popularnotion that the rest of the world will manage just fine no matter whathappens here.

He notes that the bursting of the dot-com bubble seven years ago causeda mild recession but, more importantly, a collapse in business capitalspending both in the U.S. and abroad. The subprime-mortgage fiasco, he warns, is only the tip of a much larger iceberg.

The consumer, who has indulged in the greatest spending binge in modernhistory, now accounts for 72% of our GDP. Steve reckons that's fivetimes the share of capital spending seven years ago. Reason enough tosuspect the impact of a sharp contraction in consumer spending could beconsiderably more pronounced than the damage wrought by the end of thecapital- investment boom at the turn of the century.

Of the two forces that spark consumer demand, wealth and income, it'sno contest which has provided the impetus for the mighty surge in Janeand John Q.'s spending. Since the mid-1990s, Steve points out, incomehas taken a back seat: In the past 69 months, Steve reports,private-sector compensation has edged up a mere 17%, after inflation,which "falls nearly $480 billion short of the 28% average increase ofthe past four business cycle expansions."

More than taking up the slack, however, has been the appreciation inhousing assets. But with this source of wealth dramatically running drywith the bursting of the housing bubble, he sees no way that"saving-short, overly-indebted American consumers" can continue tospend with wild abandon. And for an economy like ours, so lopsidedlydependent on such spending, "consumer capitulation spells high andrising recession risk.''

Even a moderate slump in growth could prove strictly bad news for "theearnings optimism still embedded in global equity markets," andobviously for the markets themselves. Recent action of our ownjuiced-up stock markets, we might interject, strongly hints that suchoptimism is beginning to wear a tad thin.

No mystery how we got into this bind. Following the end of the equitybubble, scared stiff of deflation, central bankers opened the monetaryfloodgates and liquidity poured into the global asset markets.

As Steve relates, "Aided and abetted by the explosion of new financialinstruments -- especially what is now over $440 trillion of derivatives-- the world embraced a new culture of debt and leverage. Yield-hungryinvestors, fixated on the retirement imperatives of aging households,acted as if they had nothing to fear. Risk was not a concern in an eraof open-ended monetary accommodation..."

Steve plainly has doubts whether Fed chief Ben Bernanke's recent ratecuts can stem "the current rout in still-overvalued credit markets." Heworries that the actions were strategically flawed in failing toaddress the "moral-hazard dilemma that continues to underpinasset-dependent economies."

And he asks, "Is this any way to run a modern-day world economy?" Allthose who think it is, please raise your hand, and then lie down andwait for the fever to pass.