The consumer bubble bursting is not a cause but a result.
A result of too much debt, underwater mortgages, unemployment, and sensible deleveraging.
The consumer was using his 'eternally' appreciating residence [thus proving Albert Bartlett's statement that the biggest human failing is our collective inability to understand the exponential function] as an ATM. When the ATM closed, he could buy no longer, thus causing all kinds of troubles, including substantial unemployment in the 16% range [don't even begin to believe the BLS numbers; the ones that count, the realistic ones, are U6, they will terrify you].
The unemployed and the underemployed curtail their consumption.
But, no, definitely not, the consumer did not cause the problem all on his own when he stopped consuming. He could no longer consume because he did not have the means to do so.
Now that the inexorable laws of the exponential function have been brought home to him, he is not buying. Rather, he is doing the right thing which is to pay debt. Self-imposed austerity is the best kind.
The biggest flaw with the past stimulus was that it imagined that the old consumer economy might return.
The biggest flaw was that it did not take into consideration the housing market. Any stimulus should have somehow promoted short sales so that homeowners with underwater mortgages could have sold without having to worry about bankruptcy, etc. Housing would have been marked to market and homeowners who could afford these suddenly cheaper homes could have done so. The amounts which were short could have been injected directly into banks thus repairing their balance sheets or could have been somehow been the subject of favorable tax policy. The foreclosure mess could have been avoided. Don't know if such a plan would have worked but it certainly seems better than bail-outs and handing out money to banks. |
