Do you fear a RECESSION/DEPRESSION? .. I'm no economist, but I think that as humans our natural tendency...!
Answers: to go from extreme to extreme is the key to the current economic slump. We went from recession in early 2000's to a speedy housing boom where selling and buying made many real estate agents rich! Unrealistic loans and purchases brought many wannabe homeowners (most people) face to face with the reality-check that they could not afford their dream homes. So all these foreclosures and loan defaults followed. House prices have dropped ever since and everyone's fear of another recession has created a very tight-fisted consumer. Interest rate adjustments were aimed to generate or sustain house purchases/sales; however, our wallets are threatened, we tend to flee more than fight (fight-or-flight reaction) fight. Now the goverment is going to spend more money to stimulate the economy. In reality, we the people, should be spending money so that the country doesn't look so scared or weak and our money would have a fighting chance in the world market. SO, work hard, play hard, and live!
Actually, spending too much money is exactly what caused some of these problems in the economy. Home buyers went out, spent as much as they could getting a home, and lenders gave them as much as possible. Then the homeowners kept right on spending with their credit cards and HELOCs until they had all the cars, computers, and other junk items that they wanted.
But spending on credit means that, eventually, the bills will come due, and homeowners found that out the hard way when their mortgage rates increased. Then, in order to make their mortgage, they had to miss a payment on this credit card or that personal loan, which drove up the interest rate on that loan. Interest rates at 10% skyrocketed to 29.99% after a missed payment, and then the homeowners had to decide between paying the mortgage at all or paying the credit cards, and collectors from all companies were calling looking for their money.
Factor in inflation due to government overspending and devaluing the currency, and prices for transportation, home heating, and food were going up 10% or more per year.
Homeowners spent their way from a 6% mortgage rate to an 11% rate, and from a 10% credit card rate to a 29.99% rate.
The government spent their way from the dollar being the reserve currency of the world to a tripling of oil prices and inflation rates of 30% in some commodities.
Oh, and the savings that homeowners should have been putting away to meet any emergency? Well that was nonexistent, as the savings rate has been negative for years now. They spent so much, that they had to borrow just to make ends meet and continue their spending.
If we could get spending under control, and consumers saved even a little bit to get through financial hardships, the fear of recession would probably be much less, and the economic downturn itself would be less dramatic.