Hearing words like "crisis" and "catastrophic" used to describe today's current pre-"stimulus" economic climate has me wondering: how bad is it really? Is the average American going through foreclosure? No. Are the millions of renters worried about house prices dropping? No. Am I personally suffering right now? No. Am I unable to get health care? No. As a matter of fact, I would bet that most of us are faring pretty well, even if our stocks aren't looking as good as they were a few months ago.
But, you say, what about the people who are losing their homes (by which, I assume you mean the few who actually are losing their primary residences, not the ones who are deliberately walking away from their second, third, fourth, fifth investment homes)? Foreclosure is not a new phenomenon. In normal markets, there are foreclosures. In fact, most of the delinquent loans reinstate under more favorable terms, usually by extending the loan term to reduce the monthly payment, or forgiving a portion of the principal. Banks have an incentive to restructure their clients' loans because banks do not want to lose their revenue and right now they certainly do not want to be in the real estate business. This was not the case during the housing bubble. From 2004 - 2006 in particular, banks were all too happy to enter the real estate business because they could turn around and sell the house for a profit.
But, what about people who have lost their jobs? At 7.2%, unemployment today is still low by historic standards. Unemployment right now also does not represent an across-the-board decline in jobs. Rather, it represents a transition from one sector to another. People who used to be in the mortgage and banking industries are moving to other sectors. This process takes time and there is some, temporary unemployment. People are not unemployed because there is no work for them to do; they are unemployed because in their previous role, they were not able to bring as much value as they cost.
What about people who have lost money in the stock market? This is a complicated issue, as stock prices reflect expectations of higher taxes to pay for national health care programs, bailouts, stimulus packages, higher corporate tax rates in general, increased capital gains taxes on stockholders, etc. All of these cause stock prices to go down. Is the solution then to raise government spending, thereby raising future taxes and inflation, which will cause stock prices to further plummet? When faced with higher capital gains taxes, people opt to either sell their stock now before the tax hikes go into effect, or they abstain from entering the market. Either way, demand drops and as we know from Economics 101, this means prices fall too.
More spending on socialized health care, government bailouts of companies that made bad decisions, and $800,000,000,000 quick-spend plans is not "the price we have to pay" to "get us out of a catastrophe." The expectation of increased spending and higher taxes under the new administration is what led to many of the declines in the stock market, caused companies to have difficulty increasing capital to retain employees, and is causing more economic woes than are warranted. Instead of proving these expectations to be correct, let's turn the course around by allowing consumers and businesses to tell the government to take a back seat and see how capable we are of deciding where our money goes without their so-called help.