Several readers suggested a topic that many newspapers are reporting on after yesterdays GDP numbers. "It is official. The economy is grinding to a halt while inflation is jumping. Stagflation part II coming to a neighborhood near you."

Another replied, "My take on this is that the actual inflation (increase in the money supply) happened while the interest rates were so low, and the housing boom is the main source of the inflation. The increase in prices we see now is a direct result of the increase in the money supply that was a result of the easy credit on housing."

"It would have been much better to 'take our medicine' without creating this housing boom first which just increased the imbalances. I am expecting deflation; others on this blog expect more inflation or hyperinflation. If housing prices drop significantly this will be deflationary and people will have to cut back on their spending and generally think about saving money wich will be deflationary. I am expecting all classes of investments to drop, even gold, although perhaps I am wrong there."

And another said, "I am of the inflationary persuasion with regard to the economy. If the hedonic figures are removed from the CPI (eg. the Cavalier that you purchased for $10,000 in 2001 now costs $14,000 - that is not inflation; per the government, the car has improved by $4000). IMHO the Fed will tighten to try to stop inflation, but then will open the flood gates to stimulate the economy then hyper inflation."

And finally, "I think we’ve been in a stagflationary period for a long, long time, from the 70s on, in varying degrees."

The LA Times. "The cooling housing market may be undercutting overall consumer spending as fewer people count on rising home equity to finance trips to the mall. Consumer spending grew by only 2.5% in the second quarter, down from 4.8% in the first quarter, according to the Commerce Department report Friday."

"'People were selling part of their house to finance dinner at Olive Garden,' said Dirk van Dijk, at Zacks Investment Research. 'You can play that game as long as the price of housing is going up. You take that away and it becomes a scary proposition.'"

The Washington Post. "Some retailers and industry experts say the cooling housing market is directly related to weak performance in home furnishings. Fewer houses sold means fewer to decorate, and slumping sales for retailers. 'The softening in the housing market is definitely having an impact on what consumers perceive they need to buy,' said Janet Hoffman."

"Stanis Furniture, based in Fairfax, is closing its second location, in Chantilly. Mastercraft Interiors is liquidating its four stores after filing for bankruptcy in May. Brown's Wood Stuff closed two of its three Virginia stores. Even Georgetown's home design hot spot Cady's Alley has taken a hit, with upscale retailers Hollis & Knight and the Ambiente Collection going dark."

The New York Times. "The housing industry, which largely carried the American economy through the tribulations of the 2000 stock-market crash, a recession and climbing oil prices, has lost its vigor in recent months and now has begun to bog down the broader economy."

"'It hasn’t slowed down a little bit, it has slowed down a lot,' said Doug McCraw, a developer who has scrapped his plans for a 205-unit condominium tower in a neighborhood just north of downtown Fort Lauderdale, FL."

"The biggest risk, economists say, is that the optimism that fed the real-estate boom will reverse dramatically. Just as rising housing prices during the boom added to Americans’ sense of wealth and well-being, the reverse could dampen sentiment and lead consumers to pull back on their purchases."

"Going forward, many economists say, the biggest question is whether the orderly real-estate slowdown the Fed has engineered thus far will continue. 'Outside the threat of surging energy prices,' economist mark Zandi said, 'the most significant threat to the expansion is that the housing correction turns into a housing crash.'"

"When the American economy fell into recession five years ago, it was the strength of the housing market that kept the downturn short and mild. Home sales kept rising throughout the downturn, and then took off when the recession began. But now home sales are falling and the number of unsold homes is at the highest level ever."

"To be sure, over the 12 months through June more than 6 million single-family existing homes and 1.2 million new homes were sold. It is conceivable that the market will stabilize at levels that look weak only when compared to last year’s extraordinary numbers. But with sales weakening and the number of available homes rising, those who warned of a housing bubble must be wondering if their fears are finally becoming reality."