Almost everything seems to be going wrong for the American economy at once. People are buying less, but most things are costing more. Mortgage rates are rising, the dollar is falling and prices of key commodities such as oil are leaping from one record high to the next.
Yesterday, the dollar plumbed new lows against the Japanese yen, the euro and other major currencies; the price of an ounce of gold rose above $1,000 for the first time, and lenders raised home loan rates once again. Government figures showed retail sales fell in February as consumers cut back on cars, furniture and electronics.
A toxic blend of economic and financial developments is testing policymakers and lawmakers who are struggling to contain the slump brought on by the collapse of the mortgage market, a downturn that now looks sure to push the economy into a recession. Though current conditions are a far cry from the 1970s, resurgent inflation is raising the specter of stagflation - a condition in which unemployment and the prices of goods and services both rise.
Since the credit markets began to seize up in August, the steps taken by the Federal Reserve and the rest of the federal government have often bolstered stocks briefly, but so far they have done little to stem the larger downward drift.
Many specialists say policymakers can do only so much to protect the economy and warn that the government should be careful not to exacerbate inflation and create a new bubble like the one in housing that has burst.
Lower interest rates and increased federal spending may not be enough to shore up growth, and some suggest that the only remedy for the pain may be the pain itself. A Standard & Poor's report predicted that subprime mortgage write-downs at banks were nearly done, though losses in other areas might continue.
"We have to be careful about what medicines we throw at this, whether it's stimulus packages or a bailout," said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. "A lot of what we are dealing with is a solvency problem. We need to let the system wash it out."
By this way of thinking, the markets will eventually correct themselves. The housing and mortgage markets will pick up once home prices have fallen far enough to attract buyers. The dollar will keep falling until the weaker exchange rate boosts American exports and, in turn, the broader economy.
Stocks and bonds will decline until weaker players who rely heavily on borrowed money are driven out of the markets, allowing those who were more conservative to invest cheaply.
"It's not a silver lining; it's a platinum lining," Carl B. Weinberg, chief economist at High Frequency Economics, said about the falling dollar and exports.
In the past 12 months, the dollar has slid nearly 14 percent against six major world currencies, reaching its lowest levels since the American exchange rate was allowed to float freely in the 1970s. Exports in January, by comparison, were up 16.3 percent from a year earlier; imports were up 10.9 per- cent.
Yesterday, a dollar fetched 100.69 yen, the lowest level since the mid-1990s and down 13.4 percent over the past year. The dollar has slipped 8.4 percent against the Chinese yuan and 18.4 percent against the euro.
The fall of the dollar has contributed to the surge in commodity prices, many specialists say. Oil, foodstuffs and many other raw materials are priced in dollars, and as the currency falls in value, suppliers of these commodities demand higher prices just to stay even.
The weakness of the dollar partly explains why oil prices have risen $23 a barrel in the past six weeks alone. Oil futures touched $111 a barrel for the first time yesterday and closed at $110.33 a barrel on the New York Mercantile Exchange, up 41 cents. Gold prices surged past $1,000 per troy ounce but closed at $993.80, up 1.4 percent for the day.
"Where do you go?" said John Kilduff, senior vice president of energy at MF Global in New York. "Where do investors go? Obviously, they are fleeing the dollar and seeking out hard assets like commodities."
For American consumers, the surge in commodity prices comes on top of falling home prices, tightening credit conditions and, lately, a weakening job market.
It is no wonder, economists say, that retail sales and other measures of consumer spending are falling.