An Experiment in Scotch

I’ve been read­ing a lot of arti­cles lately related to the bailout specif­i­cally and our crappy econ­omy in gen­eral. More and more, a nefar­i­ous lit­tle meme is show­ing up and it’s start­ing to drive me insane. Tim at The Mess That Greenspan Made has been harp­ing on it as well. It’s usu­ally sub­tle, placed 7 or 8 para­graphs in and you can eas­ily glide over it and never notice. That meme is that the root cause of all our prob­lems is falling house prices. Which is ridicu­lous. That’s like say­ing the root cause of the stock crash in 2000 was falling stock prices. Guess what? That’s just a symp­tom, a happy after effect of the old “What goes up must come down” saying.

Falling house prices aren’t the root cause. House prices rose too far, too fast in much of the coun­try and what we’re see­ing now is a much needed cor­rec­tion. The root cause of the prob­lem is the easy credit lifestyle and cheap money that’s been going on since the 80s and 90s. Too much money is chas­ing too few assets and this results in huge bub­bles like we’ve seen in the stock mar­ket and the hous­ing mar­ket. Until you have some sem­blance of san­ity at the Fed, we’re going to con­tinue to be in prob­lem because even if house prices sta­bi­lize and start going up, the real root cause is still going to exist and will cre­ate another bub­ble some­where else.

Until we have an econ­omy that isn’t dri­ven by con­sumers spend­ing money they don’t have on things they don’t need, we will con­tinue to see bad eco­nomic times. Sadly, I think that may not ever change and that even­tu­ally, demand for gov­ern­ment inter­ven­tion will grow so high that we’ll oper­ate in a mar­ket much more like Europe than Amer­ica. Hope­fully, I’m just being pessimistic.