Root Causes

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.

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