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America's troubled economy now appears increasingly likely to slip into recession, a development with grim implications for the country and even relatively prosperous Maryland.

The Federal Reserve, which this week lowered interest rates for the second time in two weeks, has done much of what it can do to ease the pain. But with continued bad news from America's largest investment firms and unrest in financial markets, even healthy businesses are girding for trouble.

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The negative evidence is everywhere. The pace of economic growth has plummeted from a healthy 5 percent rate in the first quarter of last year to less than 1 percent in the fourth quarter. Unemployment is growing, and the number of jobs available declined in December.

The employment situation is brighter in Maryland, with virtual full employment - 3.8 percent - reported at year's end. But more Marylanders are finding it difficult to buy the average home, even though the mortgage industry meltdown has made this a buyer's market.

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For a very long time, consumer spending has powered the American economy through periods of turmoil. But experts worry that consumers won't be able to do the job this time. Fast-rising prices of energy, food and other basic living expenses are leaving many families with less disposable income to spend on other goods. With housing values dropping and the stock market in a slump, credit will be harder to find and consumers will be less able to borrow to spend.

All of that means there is likely to be continued pressure on President Bush and Congress to increase government spending to help create jobs and boost the economy, beyond the short-term economic stimulus package being considered. That could help, but more deficit spending could produce a painful mix of inflation and stagnation.

In the end, there is likely to be a period of hard times as we pay the price of excessive borrowing and spending in recent years. The resulting economic fallout should encourage federal and state regulators to become more vigilant to ensure the future stability and security of our markets and economy.

In Maryland, state lawmakers have before them a legislative package intended to correct abuses and problems resulting from the subprime mortgage crisis. But state officials also should explore the potential culpability of some mortgage bankers and brokers, who may have contributed to the current economic trouble by concealing from homebuyers the terms and costs of adjustable-rate mortgages in recent years. Investigations are underway in other states.

For the nation, new rules should be drafted to protect investors and avoid market chaos like that caused recently by the sale of complex and poorly understood securities.


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