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Debt biggest threat to US economy

The combined risk of mortgage defaults and heavy debt loads has overtaken terrorism as the biggest short-term threat to the US economy, The Wall Street Journal reported Monday, quoting a survey by economists.

The National Association for Business Economics says almost a third of its survey respondents listed debt-related problems as their top worry. About 18% cited the effects of subprime-loan defaults and 14% listed excessive household or corporate debt. About 20% of the 258 members responding put defense concerns and the possible economic disruption of a terror attack at the top of their list, down from 35% in the group’s March survey. Energy prices were the top-cited risk among 13% of the group, which largely includes economists working at US corporations or with think tanks and universities. The poll results, collected from July 24 to Aug. 14, reflect early worries about the turmoil spreading through equity and debt markets in recent weeks.

Defaults tied to riskier home loans soared this year, devaluing mortgage-backed securities and spurring a pullback from many lenders. The ensuing crisis has spurred worries of cutbacks in business and consumer spending. Forecasters are starting to revise their growth forecasts for this year as a result of the market turmoil. They are discussing the odds of a recession, which they say is avoidable if the Federal Reserve cuts interest rates. The economy grew at a strong 3.4% annual rate in the Q2 after almost stalling in the first three months of the year with 0.6% growth. (