Credit Squeeze is normal in downturn

Have you had enough of supply-side economics yet? Think about it. Which is the reason that a business expands?

a. someone gave the boss a bunch of free taxpayer money.
b. customer orders exceed production capacity.

The answer is that our economy is demand driven. When Reagan first campaigned in primaries on supply-side economics, George H. W. Bush called it "voodoo economics."

The wall street "geniuses" have run off with billions of investor money, now the institutions are failing, and they want the taxpayer to pump more money to the top (see choice a. above). If we don't give them our wallet, there will be a credit lockdown! Just look at the crunch now! Read on for more perspective on this:

...The bottom line is that we have badly over-leveraged banks who are on the edge of collapse and we have a credit tightening due to an economic downturn. These problems are related, but even if we could snap our fingers and make the banks healthy again tomorrow, we would still have a serious credit problem due to the recession. In other words, many of the businesses and people who have been appearing on news shows because they could not get credit would still not be able to get credit. (Although they probably will not be appearing on the news shows once the bailout passes.)

Just to remind everyone the cause is the loss of more than $4 trillion in housing equity due to the collapse of the housing bubble. The collapse of this bubble has not only devastated the construction and real estate market, it also has forced consumers to cut back. Tens of millions of homeowners no longer have any equity against which to borrow. Even those who still have equity realize that they will have to increase their savings to support themselves in retirement.

And all this came about because the experts who are now insisting that we need a bailout had previously insisted that there was no housing bubble and that everything was just fine. It is always important to keep things in context. -- Dean Baker on Huffington