This is one prediction I am not happy to see coming to pass. The housing slump was today reported to have spread to most of the country, with 40 states seeing sales falling and price decreases in many urban areas. It is somewhat ironic that this report comes out right at the moment the Fed Chief is telling Congress that the economy is looking pretty good. Maybe it is in the aggregate but it is hard not to see the housing slump as a harbinger of more to come as the air comes out of the housing bubble we have seen in many coastal urban areas. As noted in various previous posts on this topic, the US economy will need to produce more traded goods (i.e. manufactures, among others) and less non-traded goods (i.e. houses) if it is to ever close the gap in its trade balance. Indeed, if you are one who believes that foreigners will be willing to finance this gap for the rest of time then there is no need to worry. For the rest of us, we will hope that this shift happens gradually and not all at once. But it does seem that the shift is starting to happen.