It's The Economy Stupid...

Great article from American Thinker on economics and the current situation.

In this election year, the greatest concern for most Americans is the economy and there is good reason for that. Unemployment, foreclosures and prices are all rising. The stock market, home prices and the dollar are all falling. Economic growth is still positive but well below potential. Americans are rightly worried.

In a recent market commentary, Bill Gross called credit the mother's milk of capitalism. That sentiment, echoed by our politicians and policy makers, is the source of our problems. It is not credit but capital that is the lifeblood of capitalism and the US doesn't accumulate enough capital to support the growth to which we've become accustomed. The savings rate has ticked somewhat higher over the last few months, but for years we've saved too little and spent too much. The difference to date has been provided by foreigners such as the Chinese who now own over $1 trillion of US debt and Middle Easterners who own even more.

In their efforts to revive the credit markets, the Federal Reserve and their political enablers may have averted an economic crisis in the short term, but the long term implications have yet to be reckoned. Bear Stearns, Fannie Mae and Freddie Mac, deemed too big to fail, were given access to the public purse rather than face the consequences of excessive leverage. The cure for excessive private indebtedness has been deemed to be more public indebtedness. Private actors will reap the benefits if these transactions turn out profitable while the public will pay the price if they don't.