And thank you for pointing out how the government has long been involved with the economy in this country. I don’t think we’ve ever had a truly “free” market here or in any other industrialized country. In fact, intervention/protectionism is generally required to protect emerging markets. Recall the South’s complaints about high tariffs on British goods which were cheaper and better made than what Northern manufacturing produced. But without those tariffs, the industrial revolution in American doesn’t take off. Similarly, the US faced its most rapid and dramatic economic growth in its history in the 1940s when government intervention was at its highest. Rationing, price controls, massive government spending in what was a virtual command-style economy.

From its very beginning, America has been about government stimulation of the economy. Much of the early Industrial Revolution was driven by the precision machine work done in the Connecticut River Valley. That was all an outgrowth of the Federal Arsenal at Springfield, Mass – a government program. The mighty farms of the midwest wouldn’t have been possible if the government had not financed the creation of the trans-continental railroad. Same with rural electrification and irrigation projects. The boom years of the 1950s were fueled by the GI Bill and war-era research and development converted to peace time use.

Repeating the myth of the self-made man and the rugged individual make us all feel good but they are indeed myths. Between the individual and big business, big business always prevails. That’s why government must serve as the referee that can level the playing field and not as a house servant of the very wealthy.

Home prices were overinflated. Like any product, houses are subject to the laws of supply and demand determining price. Land got too expensive. Too many high priced homes were built in an effort to recoupl the money spent on the land. Those that could afford expensive houses gobbled them up, but far too many who couldn’t afford them did so also. Our government was far too eager to see lending institutions give everyone a chance at the American dream. It created a false sense of a booming economy, when underneath the surface, good paying, sustainable jobs were disappearing and going oversees. Once the recession hit, it all hit the fan.

Had the administration, Bush and Obama’s, allowed the market to correct itself, we might be on the verge of recovery instead of a double dip recession. Instead, they tried to bail everyone out and stimulate private sector spending when people no longer have the money or the stomach to spend. So you now have people still losing their homes, lending institutions that either aren’t lending or still in danger of going under. Topping it all off, you have a government so far in debt it can’t afford another stimulus program.

You’re not being negative Dick. You’re being honest. We need more honesty, not more pie in the sky projections that tell us if we go out and spend on a personal and on a government level, everything will be allright. It’s not going to be.

We’re undergoing a sea change in this country. People need to batten down the hatches. Save as much money as possible. Buy only what you need and what you can afford. Forget about stimulating business. All you’re doing is stimulating corporate profit takers more interested in a company’s stock prices than the overall health of the company and its ability to create jobs. America’s economy has lost its way, and only a return to good old fashioned financial practices will help it find its way back.

But now, these same buyers can’t get financing. It could be, as you suggest, that banks have better places to put their money. There’s also that reactionary swing from one extreme (no standards) to another (impossibly tight standards).

More than anything else, the extremely high prices that were reached at the peak of the real estate bubble have trapped many people in their homes. I don’t know how you solve that. Trying to re-inflate prices would just be revisiting the types of mistakes that got us into this mess in the first place and there’s really no way to do a blanket discounting of home indebtedness, especially when people are still able to make their monthly payments. It’s just that those people are stuck in their homes, unable to sell. In that setting, things like divorce, death, illness or job loss make keeping the house unsustainable.

The key to all of this is obviously jobs. The government tried to create jobs through TARP (by recapitalizing banks so they start lending again), the stimulus, and zero percent lending rates. But a funny thing is happening: the large banks aren’t lending. They’re too busy shelling out bonuses and buying treasuries with the money the Federal Reserve lent them at 0% so they can scoop up the interest. Naturally this means the government (i.e., taxpayers) will be poorer than before. Despite all the warnings two years ago about looming inflation, the global credit crunch has produced massive deflation. Hence no job creation; hence no real estate recovery; hence no sustainable economic growth.