The ‘business cycle’ you hear so much about has a lot to do with elections. The Fed will hold the economy up before an election, then let it correct itself after the election. If you pay attention it happens before and after every presidential election.

There are many signs to see if we are headed towards a recession–unemployment, consumer confidence, slow down of durable goods. The thing is most of these numbers are ‘boring math problems’ so people just listen to the media rather than reading it for themselves.

The economy is not in the best condition, but it has seen harder times. Most dooms sayers really don’t know. They say the same thing during every recession. After 9/11 it was that we could never fully recover and that was the end. The economy was worse then than it is now, and we had several good boom years in between.

Deflation of the scale which is resulting from the subprime mortgage crisis will produce an economic downturn which nothing financial managers or legislation can forestall. Real property assets are worth less, so, in effect, there is less money.

America is no different than any family overspending and living beyond their means on credit. Eventually you can’t pay the interest, then you just keep getting in deeper and deeper until you do something drastic, like credit counseling or bankruptcy. Unfortunately credit counseling and bankruptcy are not a national option, so it’s going to take spending restraint and a long slow effort to recover from this financial debackle.