“The EU should be working with the United States to promote new technologies, not finding protectionist gimmicks to apply new duties to these products,” US Trade Representative Susan Schwab said to Thomson Reuters.

“Investors may have fled the US dollar, and watched the eurozone grow relatively fast against its lagging American counterpart,” says Jody Clark in Money Week, “but they’ve ignored the hidden weaknesses on this side of the Atlantic.

“This year’s first-quarter GDP growth across the eurozone flipped up a good 0.7%, but that figure was skewed upwards by the rollicking performance of the German economy. German GDP growth climbed 1.5% on the back of a roaring manufacturing base oiled by booming exports. In contrast, Italy only managed expansion of 0.4% and Spain 0.3%, while in Portugal, growth actually fell by 0.2%.

“Meanwhile, inflation is on the rise, led by a good 4.6% in Spain and 5% in Ireland. Both are well outside the ECB’s 2% target. The spectre of stagflation – a stagnant economy plus rising inflation – is rearing its ugly head. Indeed, ’stagflation is a situation that we experienced some years ago, it could return,’ said Spain’s Economy Minister Pedro Solbes earlier this month.”

The US should get its house in order too, says Chuck Butler in The Daily Reckoning.

“The currency markets do not like any form of protectionism, and a country that puts protectionism in place usually sees the currency suffer.

“So, think about this for a minute… We have an election process going on in the United States that will come to a head in November, which is six months away. During that six months there will be candidates taking shots at OPEC and China (the two main ‘outside’ culprits of the trade deficit… But we would never go after the US consumer and tell him to save instead of spend now would we?)”

“Month-to-month, it gets consistently worse,” said David Blitzer, chairman of the index committee at S&P, noting that February also marked the sixth straight month that all 20 cities experienced declines. “The slope is one direction. There is no sign of a bottom.”

“If you expect a ‘muddle through’ economic recovery to persist over the next 12 months – and I do – then the Fed will have to stay on guard as housing attempts to establish a bottom,” says Eric Roseman in The Offshore A-Letter.

“This doesn’t imply the dollar must fall further. But it does suggest commodities and gold will continue to rally because most central banks will continue to print credit while they try to look concerned about inflation.”

Bill Bonner in The Daily Reckoning says, “The last two big bubbles – in residential housing and the financial industry – are deflating. Prices are going down for both assets. But inflation-sensitive commodities, most notably oil and gold, have soared. And now prices seem be working their up all along the chain… from the oil wells, to the shipping containers, to the Chinese sweatshops, to the shelves of Wal-Mart.

“What this means to central bankers is that they have to watch it. They can’t cut rates so freely… not while consumer prices are rising. Instead, the pressure will be on the other side – to raise rates.

“To the man on the street it means that he has to prepare to pay higher prices for everything.”

At least 150 banks will fail in the US during the next two to three years, according to a projection by Gerard Cassidy and his colleagues at RBC Capital Markets.

If the current economic slowdown deteriorates into a recession on the scale of those from the 1980s and early 1990’s, the number of failures will be much higher this time around — probably as high as 300 of them, by RBC’s reckoning.

“Late payment rates on subprime US mortgages stayed above 9% even when the cost of borrowing sank to a four-decade low (and stayed there) between 2002 and 2005,” says Adrian Ash in The Daily Reckoning UK.

“Teaser rates of just 1% interest, in other words, left almost one-in-ten subprime borrowers unable to meet their monthly mortgage bills. So the profits assumed by ‘resetting’ those rates to 7% and above two years down the line were never going to show up.

“As in not ever. Any bank day-dreaming otherwise deserves euthanasia, let alone bankruptcy.”

“The so-called ‘first wave’ of the credit crisis hit banks’ trading books,” says William Patalon III in Money Morning. “But the second lightning strike will hit lenders where it hurts the most – right in their lending businesses […] The impact on the economy will be devastating.

“Here’s why. The banking system’s ‘originate-to-distribute’ model changed the rules of the game. No longer did banks make loans that were based on very careful risk-of-loss analyses. Under the new system, banks make loans – such as subprime mortgages – which are then ’securitized’, or packaged together, into debt instruments that the trading operations of banks, investment banks or institutional investors might then purchase, believing it was a way of achieving higher returns.”