So why are we talking about the next Great Depression?
The US economy, historically, has a natural rate of real growth due to gains in productivity and population increase. Of course, the closer you look at the data, you will see both higher and lower growth rates. The whole reason that the government is involved in the economy is that we recognize the need for policy to moderate both the highs and lows.
The economic growth we have experienced over the last few years, as you know, has been the result of a housing bubble, created by a policy change that allowed financial institutions to make loans that artificially drove up demand for housing, causing housing prices to rise, and development to increase. (This was a response to a flattening of economic growth from the last bubble, but I digress.) The important thing to remember that within any bubble, there are plenty of people and institutions making a lot of money and gaining a lot of power out of vacuum, and is represented in this graph by the yellow shaded area I coin the sonsabitches gap. This is to whom all the bullshit wealth that was created for no logical reason went--and why you see wages stagnant in a growing economy.
As with all bubbles, eventually everybody who was going to buy in, buys in, and there are no more suckers. In the economic equivalent of musical chairs, the music stops. What happens, every goddamn time there is a bubble, is that people who do find a seat, still lose the game.
The scary part of all this is that without sound economic and fiscal policy in the wake of the bubble burst, the economic growth rate crashes through the "floor" of sustainable economic growth, and because of this, the real unemployment rate becomes far higher than the natural unemployment rate would be, and, combined and in collusion with other deflationary pressures which more or less feed on each other, we find ourselves in far worse position than we otherwise would be. There is no way out of this until the economy literally bottoms out. It is therefore critical, then, for the government to staunch the bleeding before the combining effects of unemployment and foreclosure force the bullshit growth rate down into levels in which we're economically under performing at a level in which the US as an economic unit also becomes politically unstable.
And this is what you're seeing right now. What the incoming administration will try to do right now is retard the oscillatory effect of bullshit growth, which is the economic equivalent of performing first aid--if you want a clearer image, of administering a defibrillator, and then only after the economy stabilizes will it attempt to look at ways to heal and rehabilitate it to back to the sustainable growth rate. There is always the danger, though, to continue the medical metaphor, of the economy slipping into a long-term coma.
