If you imagine the economy as a living organism, then a University of Wyoming expert says credit is its oxygen supply.

And at the moment, Robert Godby, chairman of the University of Wyoming Department of Economics and Finance, thinks the U.S. economy is being forced to hold its breath.

If that doesn't change soon, the economy will begin to suffocate. And that will hurt not just Wall Street, but Main Street as well.

On Monday, a bitterly divided U.S. House voted down a $700 billion bailout plan to help provide stability in the shell-shocked financial markets.

Part of the plan would allow companies to sell bad assets to the government, so banks and other financial institutions can get "toxic" mortgages off their books.

The Senate debated the plan and passed it on Wednesday. The plan goes to the House for approval Friday.

Godby said the bailout is not about rescuing fat-cat investment bankers on Wall Street from the consequences of their own bad decisions.

"The real issue is that we are beginning to go well beyond financial market issues," he said.

He fears that problems, which began in the financial markets, will flash over into the general economy. It could happen rapidly through the overnight credit markets.

Short-term credit is a critical factor. "We don't think much about it, but it's absolutely necessary to keep the economy going," Godby said.

When Lehman Brothers collapsed last month after 158 years in business, he said money market mutual funds experienced dramatic declines in deposits, which help finance overnight debt. Overnight markets basically began drying up or experienced big spikes in interest rates.

Banks also had become reluctant to loan to other banks on concerns about their credit worthiness.

Godby said unless short-term credit begins working properly, there could be serious economic damage.

A mild recession could turn into something much more severe, as businesses are unable to function normally. For example, firms often use short-term loans to purchase inventory or even to make payrolls.

He said Wachovia and Washington Mutual probably were casualties of the credit freeze-up.

There also is a contagion developing whereby foreign banks are being rescued by their governments.

Godby said there is no guarantee a rescue package will have the desired effect. But there is good reason to act quickly while the economy is holding its breath, rather than waiting until it suffocates.

"That is the fundamental concern that caused (Federal Reserve Chairman) Bernanke and (Treasury Secretary) Paulson to make what looked like a 180-degree turn, after talking tough to Lehman and trying to avoid the moral hazard arguments of bailing out these companies," he said.

At an economic outlook forum in Casper on Wednesday, First Interstate Bank's Chief Consulting Economist Lee McPheters pointed out that Wyoming lenders had limited exposure to subprime mortgages.

In second quarter 2008, 3 percent of all mortgages in Wyoming were subprime adjustable rate mortgages, compared to 5.7 percent in the U.S. Only 0.59 percent of state mortgages were in foreclosure.

McPheters said the Wall Street banks are not really banks at all, but investment houses. "The community banks are strong," he said.

He said the national economy will probably remain slow until housing prices bottom out.

But McPheters noted conditions vary widely across markets. While home appreciation fell by minus-1.7 percent nationally in second quarter 2008 when compared to a year earlier, it rose by almost 13 percent in Wyoming, including increases of 4.6 percent in Casper and 2.8 percent in Cheyenne.

And even as job growth has slowed and unemployment has inched up in Wyoming, the state is still much better off than the U.S. overall.

"In these times, you are lucky to be living in Casper, Wyoming," he said. "The farther you are from Wall Street, the safer you are."

McPheters said consumer confidence, which has proved to be a reliable predictor of previous U.S. recessions, is at a 16-year low.

He said consumers, burdened by debt and higher gas prices, probably will retrench. Consumer spending accounts for 70 percent of the U.S. economy.

Higher gas prices hit Wyoming particularly hard, McPheters said, due to long distances between communities and lack of mass transit.

"The consumer pie is going to be shrinking," he said, as shoppers focus on value and turn away from big ticket items.

McPheters doesn't look for a strong rebound in the U.S. economy next year. He sees real GDP growth of 1.7 percent and employment growth of 0.6 percent.

Wyoming should do better, with employment growth of 2.7 percent and population growth of 1 percent.

Contact Business Editor Tom Mast at (307) 266-0574 or tom.mast@trib.com