Saturday, March 29, 2008

Economy, Recession, Et Al

The capitalistic system typically undergoes mild recessions that correct imbalances built up during the expansion. When these recessions are not allowed to occur, the imbalances just get worse and eventually results in a much deeper recession, or even depression. After the country goes through an incredible spending spree financed with debt, there has to be a period of cleansing. And if this indulgence is accompanied by almost everyone moving into homes they cannot afford or buying second and third homes based on unlimited credit, causing an incredible housing bubble that has to be corrected, it makes the problem much worse. There is nothing the Fed can do to stop housing prices from continuing to decline and commercial real estate will be the next shoe to fall.

The period of cleansing is called a recession, but if the government and Fed continue to interfere and maybe postpone it again, the recession might turn into a depression. Let's hope the Fed and the Administration realize what is inevitable soon, or it could really get nasty!!! - Comstock Partners

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