Kass: A Market on the Brink

Economic bears, such as myself, focus on the more important role of consumer spending, accounting for a record 71% of GDP, and its likely retrenchment, which is the outgrowth of lower home prices (for the first time since the Great Depression), restrictive mortgage credit and the absence of the home as an ATM for consumption.

Importantly, the days (1995-2006) of relying on the asset appreciation of homes and equities as savings conduits have been reversed.

Since the mid 1980s, the Fed has sanctioned bubble after bubble by stimulating and then ignoring them. Fed members have, up until recently, ignored real inflationary pressures, preferring instead to recognize the artificiality of "core" inflation. As well, the Fed has ignored the causality between the credit market's earthquake and economic growth.

Frankly, it is almost comical to watch "free market capitalists" complain that the Fed did not do enough last Tuesday. From my perch, the Fed is acting responsibly; the critics of monetary policy, on the other hand, are acting irresponsibly by asking for higher and higher concentrations of interest rate opiates.

It is for these reasons (and others) that I have argued that the only hope for our domestic economy is a protracted downturn to break the accumulated economic excesses and the lethal chain of endless asset bubbles of the last two decades.