Sticking With the Basics

It is the worst recession since the Great Depression because it’s not a recession at all; it’s a depression. And the government is doing its level best to make it a great one.

The key to understanding a depression – or the downswing of the credit cycle – is that demand contracts. Consumers have less to spend. For a very simple reason: they already spent it.

Listen up, because this is important. When you borrow in order to consume, what you are really doing is consuming something today that you would have normally consumed in the future. You spend money you haven’t earned yet on something you’re not really ready to buy. You’ve heard the expression, ‘time is money.’ That’s why borrowing money is really borrowing time. Later, you have to make it up. You have pay off the debt.

Consumers are tapped out with mortgages and credit card debt. They are not in a spending mood. Their jobs, if they still have jobs, are insecure and they are paying off debt to prepare for austere times ahead. A wise maneuver in our opinion. Our politicians and their economists are not wise. They are destructively piling debt on taxpayers for generations to come.