Wall Street Out of Coma: Main Street Paralyzed?

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Despite Monday morning's slight return of confidence in the financial markets Intrade's Prediction Markets indicate the damage has been done and the U.S. economy is heading towards recession.

Intrade's prediction markets for macroeconomic indicators are currently showing the U.S. is likely to enter a recession before the end of 2009. The only question is when? And could there actually be a depression?

Last week, the Dow Jones Industrial Average collapsed by an amazing and historic 1874 points. Similar record losses were suffered in Europe and Asia , with the MSCI World Equity Index plunging by 20%. G7 leaders at the weekend agreed that "urgent and exceptional action" was required leading to this morning's positive outlook on Wall Street.

But what does it mean for Main Street?

Intrade's markets on U.S. GDP growth by quarter indicate that there is a 49% chance that the economy will contract in the 3rd quarter and a 77% chance it will contract in the 4th.

The recession markets now trade at 43% for 2008 and 79% for 2009. Just before last months' Lehman Brothers bankruptcy, the markets were trading at 11% and 47%, respectively.

To gauge just how severe and lasting the effects of the crisis may be Intrade opened trading Thursday on a new market on whether the U.S. economy will enter a depression in 2009 (depression is defined as a cumulative decline in GDP of more than 10.0% over four consecutive quarters). In light early trading the market put the chances between 6% and 15%.

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