Eric the Red

The more I hear about economic aid, the more I think its just keeping us out of a major depression that (one day anyway) will be long over due. Many of the mistakes of the present were mistakes in 1929. Among them:
– Businesses purchasing capital assets on credit
– Purchase of houses and other personal real estate on credit
– Purchase of stocks, cars, home furnishings on credit

In other words, people and businesses bought everything on credit, and when jobs were lost or sales declined defaults occurred. Waves of defaults drained bank reserves and resulted in tightened credit from more solvent institutions. The result was an inability for further spending and more losses, along with mass unemployment.

Today, we have lots of houses bought on credit that have lost value. Consumer spending is driven by credit. There is little liquidity. The governments solution: get more credit and make consumers spend more money. The Fed is lowering interest rates to make it easier to spend, but without increased liquidity in consumer bank accounts, this is a short term fix. Eventually, the situation will present itself again.

The Fed needs to stop lowering interest rates to spur stock purchases. The government should stop pushing people to spend and start pushing them to save and reduce their debt levels. They should tackle the issues associated with a lack of liquidity, and take steps to boost or maintain credit to BUSINESSES and NOT CONSUMERS to discourage layoffs.

With less reliance on shaky credit, the economy will be in a position for long-term growth.