Readers suggested a topic on the economic fallout from the housing bubble. "It seems to me housing and the recession are being soft-pedalled by both Rep’s & Dem’s. Reasons? Huckabee’s 23% across the board sales tax promoted on Leno sounds outright devastating to the middle class."

A reply, "If the sales tax is a substitute for the income tax and is backed up by some sort of Constitutional Amendment against income taxes, I’m all for it. Most likely though we will get a sales tax on top of the income tax."

To which was posted, "That’s why I can’t back the so-called Fair Tax (as it’s called by its supporters, or National Sales Tax, by detractors). You have to be realistic. There is no way Congress is going to eliminate all taxes and replace it with one tax on sales."

"Unfortunately, we ARE going to have both. The new National Sales Tax will start at 2-3% and will be used to pay for National Health Care. It will have a fancy, important-sounding name that includes the words 'fair,' 'just,' and/or 'investment,' but definitely not 'tax.' It will eventually morph into a large European-style VAT."

One added, "Improved High Leverage Enhanced Value Tax." Another predicted, "A 23% sales tax will spawn a gigantic black market. Crooks will make money at the expense of the law abiding. Think booze in the Twenties, drugs today."

One said, "If its a VAT, then only the final markup by the 'retailer' wouldn’t get taxed. VATs are used a lot in countries where tax evasion is common. In the end we will still buy our stuff at Kroger, Safeway, Albertsons Target and Walmart, etc."

Another brought up the employment report, "5% unemployment. NAR Spin: 'Now that people have more time to evaluate their housing options we expect sales to soar in the early part of 2008.'"

To which was added, "Recession fears have a negative effect on housing demand, as would-be buyers become precautious about making big-ticket purchases when their job security become tenuous."

And another, "Or any non-essential purchases for that matter."

From Bloomberg. "From Sacramento and Albany to Boston and Tallahassee, politicians in state capitals across the U.S. are wrestling with the biggest increase in borrowing costs in three years as they struggle to shore up budget deficits widening on the national housing slump."

"The extra yield investors require on 10-year bonds from California, Florida, Massachusetts and New York relative to benchmark tax-exempt rates doubled since July to the widest since at least 2004, according to data compiled by Bloomberg."

"California's gap grew to 0.44 percentage point from 0.20 percentage point, adding $24 million in extra interest over 10 years for every $1 billion borrowed."

"The cost to borrow for roads and schools is rising as property values drop and consumers cut spending, reducing sales- tax revenue that funds about one-third of state budgets."

"Thirteen states face cash shortfalls totaling $30 billion next fiscal year, the Center on Budget and Policy Priorities, a Washington research group, said in a Dec. 18 report."

"Officials in 24 states said the housing slump is cutting tax receipts, according to a survey released last month. Respondents in 18 states said they are concerned the trend may continue through the middle of 2008, three times as many as a year earlier."

"In Florida, which doesn't have an income tax, the Legislature slashed $1 billion out of the current fiscal year's budget because the sluggish housing market will cause revenue to decline for a second consecutive year."

"Maryland raised taxes by about $1.3 billion a year. Indiana Governor Mitch Daniels ordered state agencies to hold back spending by 5 percent."

"New York Governor Eliot Spitzer must close a $4.3 billion hole in next year's budget, up from $3.6 billion projected in August, according to the state's Division of Budget."

"'States are going to be challenged by the economic slowdown, the housing downturn and the amount of impact it will have on revenue while spending needs continue to grow,' said Richard Raphael, who follows state credit ratings for Fitch Ratings."

The LA Times. "Hopes that the economy could shake off the sub-prime mortgage mess and dodge recession grew fainter Friday as the Labor Department reported that U.S. employers last month added the smallest number of new jobs in more than four years -- driving the unemployment rate to a two-year high of 5%."

"Analysts say that economic activity in some states -- notably California, Nevada and Florida -- as well as substantial swaths of the Northeast corridor is probably already contracting."

"But what was particularly disheartening about the report, analysts said, was how widespread the job losses were. For example, the retail sector, which normally adds jobs in December to accommodate holiday shoppers, gave up 24,000 positions last month."

"Manufacturing, which was thought to be in the midst of a turnaround because of an export boom, dropped 31,000 jobs."

"'There's nothing heartwarming about this report,' said Neal Soss, chief economist at Credit Suisse Group Inc. in New York. 'It confirms what economists have been worried about, which is a broad-based economic slowdown.'"

""The report also left analysts shaking their heads over how problems in a relatively obscure corner of the financial world, the market for mortgages made to people with poor credit, could erupt into such an economy-threatening event and could do so in such short order. Most economists barely made note of sub-prime mortgages six months ago."

"'You look at the magnitude of the sub-prime problem, and it's just not that big relative to the size of the economy or the financial market,' marveled David Wyss, chief economist at Standard & Poor's in New York."

The International Herald Tribune. "The scene: a kickoff party in late November for the new Paris office of the troubled U.S. investment bank Bear Stearns. As applause for a formal presentation faded, and the cocktail party began in a nearby salon, a swing band struck up the 1936 Fred Astaire hit 'Let's Face the Music and Dance.'"

"It all served as an ironic reminder of how many banks and investment houses are now facing the music of easy money, risky lending and massive write-downs - and how disconnected the present gloomy picture is from the upbeat gloss being spread by economists, politicians and other pundits."

"And while 2007 may be remembered as the year of credit crisis and bursting real-estate bubbles, 2008 may go down as the year when all players in the financial markets had to face the music about formerly safe bets like hedge funds, real estate and the U.S. economy."

"Avinash Persaud, chairman of an investment advisory in London, (and) one of the most prescient voices on international finance in the post-Sept. 11 era, noted that the American consumer boom was financed with real-estate debt: Americans have spent 130 percent of their income over the past five years. 'They borrowed money against their property,' he said."

"'In our opinion, in a year's time we will see more of a credit crisis unfurling as opposed to the current liquidity crisis,' said Persaud, who warned that as gold and oil prices soar, signaling inflationary forces, it will be hard for the Fed to slash interest rates to reinvigorate the economy."

"Looking ahead, Robert Shiller, a Yale professor and the author of a seminal work on investment bubbles, explained that once real estate prices started dropping, they usually did not turn around until they had hit bottom. "

"'Real estate markets rise year after year, and then they slow down and stop, and then they start going down,' he said."

"But real estate prices also begin to accelerate on the way down - and that is exactly what is happening currently in the United States. Shiller notes the market is also turning down in Britain. Shiller said that it may also be time to get out in Paris, where real estate prices are no longer accelerating."

"Despite his pessimistic view of certain sectors, Shiller, who does not make predictions, thinks we are far from a global crisis. The real estate market is worth about $20 trillion, and so far, the fall in real estate prices has wiped out $1 trillion, or 5 percent - much of that bubble-related. 'It was easy come, easy go,' Shiller said."

"But that is a long way from assuming that things will go back to business as usual. Edward Johnson, the founder of the Fidelity mutual fund empire, gave as good advice as any about how to handle times like these: 'When the music stops,' he said, 'forget the old music.'"