One of the things that we have heard a lot about — from both political parties — is how we need to go out and spend money in order to help the economy. The bottom line is that our economy has evolved (or devolved?) to a point where debt-fueled consumer spending accounts for about 2/3 of the economic activity. This sort of spending leads to short-term, somewhat explosive growth. It means the boom times are bigger (as are the bust times). While dramatic economic growth may seem like a good thing, the truth is that the sort of economic model …read more

A couple months ago, I reported that the $700 billion bailout was likely to cost at least $2 trillion. So, with the costs that come with that large of a debt (notably interest costs), I wonder what sort of actual costs will result from a reported $1 trillion bailout plan. Because that’s where we seem to be headed.
Calls are mounting for a truly massive bailout. Honestly, though, I’m not sure why we’re even continuing the charade that there is a spending cap at all, and specific plans for the money. The government is trying its best to look as though …read more

Right now, economists and others are worrying about the continuing credit market squeeze. Indeed, they are very worried about the fact that lenders continue to tighten their standards for mortgages and consumer loans. The Federal Reserve says that domestic banks are making it harder for people to get all sorts of loans.
The result? Less access to credit will result in lower rates of consumer spending. MarketWatch reports regarding the credit market squeeze:

“This is consistent with our view that consumer spending will slow markedly over the next several quarters,” wrote economists for Lehman Bros.”

“The impending tightening may ultimately …read more