Monday, August 23, 2010

Have Regular Folks Re-Discovered The First Rule of Holes?

This query from over at Marginal Revolution got me wondering:

If Tyler Cowen and others are right that this slump is the end of family-deficit spending, it is quite conceivable that the Fed will fail to deliver that which it promises to deliver. At that point, the institutional players in the Fed will have lost credibility. 

Not all that interested in the Fed, beyond thinking that they've painted themselves into a corner with an empty toolbox. 

I'm just wondering what folks think of the idea that the era after the 2007 economic collapse will be characterized by a renewed commitment by folks to spend within their means. Financially speaking, do regular folks have a reborn appreciation of the first rule of holes:

First Rule of Holes
If you find yourself in a hole, first quit digging.

I got no argument with the idea. Folks are spending less. And I think they'll continue to be more careful for some time. And that means any recovery will continue to be slow and resistant to the encouragement of cheap money, in other words low interest rates on loans.

It's going to take a few years for folks to get a handle on what things are really worth in the post-2007 EC era. Now, will it last? Are we seeing a sea change? Do most folks now truly understand that paying on a credit is a way to pay more for something? Meh. Folks didn't suddenly get wise. They got scared. IMO, the slowness of the "recovery" is about fear and uncertainty.

No comments:

Post a Comment