Sometimes -- but by no means always -- the stupid questions are the most illuminating.

Tuesday's 'stupid question' concerns stress and the U.S. economy. Namely, could the U.S. economy handle more housing stress? Or, put another way, what would the U.S. economy look like with another round of major write-offs for housing-related losses?

"It's not an economic model we want to project, but project we must," economist David H. Wang said. "First, for one thing, another round of large write-offs would, as they say, end all doubt regarding a U.S. recession. We would record negative GDP for Q3 and Q4, at minimum, most likely for Q1 2009 as well."

"Second, you're looking at additional consolidation in investment banking and commercial banking," Wang said. "Third, there would be considerable U.S. Government involvement, the scope and amount of intervention by the U.S. Treasury and Fed [U.S. Federal Reserve] is difficult to specify, until the size of the problem is known."

It's hard to identify a silver lining in the above, but Wang found one, "but we don't want to go there," he said. Another series of large, housing-related write-offs "would most likely propel Congressionally-backed, federally-directed structural changes in banking, mortgage finance, securities, and financial regulation," Wang said.

"It's one thing if the nature of the bailout is another $50 or $100 billion. But if it amounts to the takeover of a large bank or Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the American economy would see its biggest changes since the New Deal," Wang said. "These changes would most likely end, once and for all, the 'heads-the-banks-win/tails-the-government-pays' banking system. You'd most likely see a two-tier banking system."

Not the 'end of the beginning' for housing losses?

Moreover, there are signs that it's not 'the end of the beginning' regarding housing and credit market stress, at least in the view of the former chief economist for the International Monetary Fund.

Kenneth Rogoff, former IMF chief economist, and now a Harvard University professor, said "the worst is yet to come in the U.S," and that "the financial sector needs to shrink," Bloomberg News reported Tuesday. Rogoff added that he doesn't think the distress will involve "simply having a couple of medium-sized banks and a couple of small banks going under" to do the job.

Banks have lost more $500 billion in subprime mortgages, subprime-assets, and other mortgages amid the worst housing slump in the United States in more than 20 years. European nations are also feeling the effects of the housing sector's contraction.

Write-offs large, federal money larger

Economist Richard Felson told BloggingStocks Tuesday he agrees with Rogoff that more housing-related write-offs are ahead, but disagreed regarding their scope/depth.

"He [Rogoff] used pretty strong language, and I take a slightly different stance. Losses will be significant, but from here to the economy's recovery we're looking at managed losses," Felson said. "The Fed is ready to provide liquidity, [the U.S.] Treasury is back-stopping Fannie Mae and Freddie Mac, so while the losses could be large, the reserve capital, in the form of public funds, is larger."

Economic Analysis: As economist Wang noted, more, out-sized housing write-offs would seriously complicate the U.S. economic recovery picture, in addition to negatively affecting the stock market. Regarding the latter, a DJIA at the 11,400-level basically assumes that the worst is over regarding housing: another round of major write-offs and it's not a stretch to project a Dow at 10,000 or lower.