Global economic confidence drops for third straight month

Credit market concerns

Economist David H. Wang told BloggingStocks Wednesday the U.S. economy -- still the world's leading growth engine -- is trying to mount "an enormous credit hurdle" and it's by no means certain that the U.S. will be able to do so, without a recession.

On the one hand, Wang said, the industrial and equipment investment areas of the economy "appear to holding up or at least performing adequately." On the other hand, the financial services sector's woes of subprime mortgage and related asset defaults, the specter of more defaults in 2008, and the bond insurer issue "are not only weighing on the economy from a macro standpoint, but also psychologically, so it doesn't surprise me that surveys are more pessimistic about global economic conditions now," he said.

MBIA, Ambac

Further, Wang said the bond insurer problem, in particular, is weighing on the market and on business executives at this time. Wang said subprime asset default fallout and liquidity concerns at bond insurers MBIA Inc. (NYSE: MBI) and Ambac Financial Group, Inc. (NYSE: ABK) are creating stress in the auction-rate bond market, with auctions failing to attract enough buyers, and now major municipal borrowers having to increase their interest rates offered to attract capital.

Billionaire investor Warren Buffett's offer to buy MBIA's and Ambac's municipal bonds "does virtually nothing to shore-up these two corporations" Wang said, leaving the credit markets at their strained status quo.

"MBIA and Ambac need solutions that that will help them win more business, and that also facilitates bond purchases, not one that drives up borrowing costs," Wang said. "It's unlikely that the bond and credit markets can regain a sound footing, psychologically, without a viable plan for both MBIA and Ambac, and until one surfaces, we're likely to continue to see a lot of pessimism expressed regarding the outlook for the U.S. economy and global growth."