The cure for a depression is a depression.

I got a daily email from Daily Reckoning. In it was the comment

quote:
The cure for a depression is a depression.

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A depression is not like a recession. It is caused by too much debt and requires deleveraging. A depression is also a longer event and when he says the cure for a depression is a depression that is like saying “time” is needed to cure the problems that caused the depression, too much debt.

Leading up to the Great Depression, household debt soared, just like this time. Thus, no matter what the government did, the household debt required time to be back to a level that consumers were willing to spend again.

That is the great debate now. Is Bernanke, the depression “expert,” right that government only has to act quickly and decisively to get lending going again? Is saving banking the solution? OR, is time needed for people to get their own debt under control? Can the government drive spending enough to make up for the consumer’s cutting back? Keynesians say yes.

We are going to find out, that is for sure. Building new bridges and roads doesn’t buy haircuts, new appliances, landscaping for homes, cars, etc. Consumers do that and even if they are employed, but saving, they aren’t buying as much or as often.

If we have had a change in thinking about saving and thinking about spending, some say that no matter what the government does, it won’t make a significant difference. We shall see, won’t we?

Related Posts:

• I own a business. I see first hand what the recession has done to people’s spending habits.
• Household debt grew at a 10% rate and now has fallen to a 2% growth rate and is expected to go negative.
• COMPANIES BOOST PRODUCTIVITY AND PUT OFF HIRING
• China’s nowadays is similar to the 1920’s and 1930’s.
• The beauty of this recovery is that it is already leaving 70% of the US behind!

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