The reasons why our economy is in recession goes back years,not a short term issue caused by the housing bubble.
The 1st factor is debt.Years of easy credit for consumers,businesses and Government have led to a high debt to earnings ratio for all 3 segments.A side effect is far too little savings.This dangerous scenario of depending on credit for daily life is a ticking time bomb.
The 2nd factor was high prices in 2 key areas,oil and corn.The ethanol mandate from Bush created an artificial supply problem which dramatically increased demand.Oil demand from expanding Asian countries along with other commodities such as gas,steel and building supplies led to a quick run-up of retail prices.We all found out how integrated these 2 products are in our daily life in so many different products.
The 3rd factor was the derivative market.The chain scenario of re-selling mortgages works fine until the homeowner stops making the payment.Banks,insurance companies and investment groups were all caught investing in these high risk markets.
The quick increase in prices in 2008 coupled with the high debt/low reserves of consumers forced the foreclosure rate to explode leading to the derivative market collapse.The companies most affected stopped extending credit and we had our credit crisis.This has spread globally.
The reasons aren't hard to figure out.The cure really isn't either,however,politicians aren't interested in this.Not if it cripples their power structure.Government now is trying to sell the idea that only they can fix this.Get in line,suckers.More to come...