It seems that everyone these days has an opinion on the recession. Some claim the worst is over and the economy is on a slow path toward recovery.

Others say things haven't begun to turn around yet. (There's even a third group that denies the U.S. economy is even in a recession.)

I am convinced that the economy is not only in a recession, but that the worst is still ahead of us rather than behind. You just have to look at the housing numbers for proof.

Just recently we saw another drop of more than 11 percent in housing starts. What's more, the excess supply of new, unsold homes is still rising.

Only by the end of the year will the decline in starts begin to show up. Right now, they're still way too high.

They have to fall significantly below new home sales — about another 20 percent — to start reducing the excess supply of new homes and for the housing market to stabilize.

I also think we should expect to see home prices decline another 10 percent in 2008 for a cumulative fall of about 25 percent to 30 percent.

The excess supply of both existing and new homes will worsen in 2008 for a variety of other reasons. For starters, the credit crunch has led to a collapse of origination of subprime and Alt-A mortgages.

That means consumers with weak credit ratings who were able to qualify for mortgages during the boom won't be able to get loans. It also means that homeowners who cannot refinance will be forced to sell their homes in short sales if the value of their home is lower than the balance on their mortgage.

Lastly, we can't forget about the homes that go into foreclosure and the "flippers," those who bought for speculative reasons with little equity and will dump their homes and condos into the market to reduce their capital losses.

All these factors imply that the excess supply of unsold new and existing homes will get worse rather than better, and that will put further significant pressure on new and existing home prices.

On the issue of the real economy, the International Monetary Fund recently estimated that credit losses on mortgages could come close to $1 trillion.

This means that total credit losses for the financial system could be as high as $1.7 trillion if you include all the other losses — notably credit cards and auto loans as well as corporate bonds, muni bonds, and losses on credit-default swaps, among others.

Just how many of these losses will be assumed by commercial and investment banks will depend on the allocation of these impaired assets.

The argument for a trillion dollars worth of losses on mortgages alone is based on three parameters, two of which are undisputed and a third that is subject to uncertainty.

First, let's conservatively assume that home prices fall by about 20 percent rather than 30 percent. That means only 16 million households are underwater on their loan. This assumption is not very controversial since most experts now would agree that a cumulative fall in home prices of 20 percent is a floor, not a ceiling.

Second, let's assume — as Goldman Sachs does — that a foreclosed unit causes a loss of 50 cents on the dollar for the lender.

That might seem high, but consider that, in addition to the decline in the home price, you have to add the foreclosure costs, including legal fees, loss of rent on empty properties, risk of the property being vandalized, and the cost of maintaining an empty property before resale.

Third, let's assume — and this is more controversial — that 50 percent of households underwater on a home loan eventually walk away or get foreclosed upon. Since the average U.S. mortgage is $250,000, total losses from borrowers walking away from their homes would amount to $1 trillion.

Goldman Sachs makes the same argument on two parameters (that is, a 20 percent fall in home prices and 50 percent loss on a mortgages), but it is more conservative when assuming that only 20 percent to 25 percent of underwater borrowers will walk away.

In this case, mortgage losses would be "only" $500 billion.

But home prices may likely fall more than 20 percent, and with a 30 percent drop in home prices, 21 million households (40 percent of the 51 million with an outstanding mortgage) would thus be underwater.

So, there is a lot of uncertainty on just how many of those borrowers will walk away. But given the recent evidence of not only subprime but also near-prime and prime borrowers walking away even before they are foreclosed, one can be pessimistic, as I am, on this.

Over a year ago the Federal Reserve repeated three mantras that turned out to be totally utterly wrong:

First, the Fed argued that the housing slump would soon bottom out in late 2006. We know that didn't happen.

Second, Federal Reserve Chairman Ben Bernanke argued that the subprime crisis was a "contained" problem that would not affect the rest of the financial system. Instead, we have had a massive contagion and a massive liquidity and credit crunch that is getting more severe.

Third, the Fed argued that the housing crisis would not lead to an economy-wide recession. That myth was shattered as the combinations of three bearish forces — the housing recession, the credit crunch that ensued, and high oil prices — has now led to an economy-wide recession.

At an annual conference recently organized by State Street, former Fed chairman Alan Greenspan stressed that the adjustment in the housing market, driven by the excess supply of unsold homes, will continue to drive home prices down.

What's more, this adjustment is still quite far from being over, and it will in fact continue throughout 2008.

So it is obvious that this is a most severe crisis, and we may debate whether this is the worst financial crisis since the Great Depression of the 1930s, as I argue, or the worst since World War II, as Greenspan opines.

Either way, regardless whose corner you stand in, things are still very ugly and worsening in the U.S. housing market and the economy.