So studying economics is a new devotion of mine, and I'm starting to sort a lot of new stuff out as I learn from my prof's in business school.
There's nothing wrong with the data, as I see it. The analysis of causality is also reasonable (but his analysis is indeed "old news"). I really dislike his social commentary in this piece. It makes him look petty (who's he trying to convince? Why does it matter why people borrowed?)
Economics is an interpretive field. It's really debatable whether we'll see an actual "recession" or almost imperceptable growth (the latter seems more likely from what I read). There's also a debate about whether the definition of "recession" should finally change from the standard (2 successive quarters of negative growth). The data right now show no recession yet. But they do show inflation that has to be a cause for concern. The answer to rising inflation is increasing interest rates. The Fed is almost there, but walking a fine line on "waiting for more data before we make a decision."
At some point, waiting becomes a dereliction of duty, but I wouldn't accuse the Fed of that right now. Not Bernanke anyway (Greenspan was a douche). The problem with raising interest rates is that all those Home Equity lines of credit are tied to the Fed rate. If those equity credit lines reach the point that they start increasing bankruptcies and foreclosures, you add fuel to a fire, with unpredictable consequence.
We have our finger on a leaking dam, and we wait.
The overall economy is probably better off letting the capitalist cycle play itself out. Let companies, including banks, fail, and see who emerges to make competitive advantage out of that cycle (watch for a lot of foreign acquisition of US firms, which is in no way something to be alarmed about). But watching inflation remains a key job to controlling the speed at which consequence takes its toll.
What present data cannot predict is new economic activity, which could happen (in new sectors of an always adaptive economy). But relying on hope of future good news is no way to run an economy.
His last paragraph is his best, by far. Let me emphasise his points:
Companies need to fail, housing needs to find its bottom based on supply, demand and price. Those who gambled must be allowed to lose and suffer the consequences. If the government attempts to shift the losses to those who lived lifestyles of thrift, an angry uprising will ensue. Government intervention in this natural process could lead to a decade long depression. Letís hope that reasonable heads prevail.
The sentence after my highlight is also worthy of examination:
An angry uprising should ensue
but probably won't.
Banks like Fannie Mae and Freddie Mac should really be allowed to fail this time. There are other lenders and investment agencies that should also be allowed to reap what they've sown.
The problem is an American psyche that refuses to deal with consequence of its own behavior, and a government that still has too much access to foreign credit (or any credit for that matter). The US voter will freak out and demand the government ensure its economic stability. The politicians will borrow today, with no idea how it'll pay in 20 or 40 years, and provide that stability, and the people will forget about yesterday's close call.
Tell the people you care about to keep a steady job, and to understand the difference between "need" and "want" right now, and to pay off their debt before all else.