I’m no economist, but I do make one particular observation regarding the current economy:
The recession we are currently experiencing was undoubtedly caused by the collapse of many financial institutions. This collapse was caused by lenders making bad loans to people who were spending more than they could ever repay.
The exposing of that truth put us into a lending/financial/banking crisis which struck fear into people and companies. They began saving and scrimping and protecting their capital at all costs. People stopped spending money, and the layoffs started. Since most jobs are dependent on companies selling stuff and people buying it. If everyone stands around and no one buys anything, then the recession just gets worse. More layoffs, less spending – it’s a downward spiral. And so began the protectionist phase of this recession.
Now we’re entering the next phase – which seems to be the consumer and corporate confidence crisis. No one is willing to take the first risk right now into an economic situation that is still unsure. No one knows how long the recession will last and is holding their cards until the last round.
Someone has to take the first step. Confidence has to be restored. Unfortunately, the government is the one with deep enough pockets and a large enough megaphone to do anything about the confidence crisis. The only question is, will their stimulus package stimulate the right places of the economy, such that people and companies will then increase their spending and turn their confidence around?
It’s ironic – we were put into this recession by spending, and the only proposed way out will be spending. Is our continual, unsustainable spending really the only way out of this crisis, or am I missing something?