God Help Us All!!

Larry Summers, you know the Obama economic guru, is recommending that we all go out and spend to help the economy. We can save and pay down debt later. This, my friends, is the worst thing I have heard from the new Administration yet. Obama at least said it in logical terms like spend prudently and do not start stuffing cash into a matress foolishly.

http://www.calculatedriskblog.com/2009/03/summers-universal-demand-agenda.html

A quick spending spree is not going to save us from a multi-year recession, perhaps depression. Right now we are entering into a prolonged downturn. I know some are questioning my use of "entering" but I fear we have a ways to go. Either way, the question is what is the best way to deal with it.

Let's say you have had a band-aid on for a week and now you need to remove it. Do you peel it off slowly or rip it off? I am in favor of the latter. This means that individuals drastically reduce spending and increase savings, that our homes are not piggy-banks, that we put off purchases and hunker down a bit. I have been saying hunker down for over a year now and folks are waking up.

Now I do not need to tell people any more to hunker down. With job losses and job uncertainties people are afraid to spend. They need to save and pay off debt and out of fear they are doing it. Nonetheless, we need to get to a place where we spend prudently out of habit, not fear, and this prudent spending will lead us back to an economy unlike what we have built. The economy will be smaller and more efficient.

Yet our government wants us to spend without reason other than supporting an overbuilt economy. They built an economy to cater to a U.S. living off debt and now we will not/cannot do so. The answer is not for people to keep foolishly keep spending beyond their means. The answer is to shrink what we have built, to let businesses go under, to return to what should be reality. The sooner, the better.

All this is a discussion on whether the recession will become a depression and on whether it will last 5-10 years or a generation - and I say this seriously. We are looking at the potential for a generation of pain if we do not tread properly. We need to reduce debt on all levels, including individial, correct our ways and find the new economic reality. Where do we belong?

Disclosures: None.