The economic crisis in a nutshell …

Ken’s Take: This guy has really cut through to the essence of the economic crisis. Of course, problem identification is always easier than problem solution.

Still, simply memorize the following synopsis and you’ll impress folks at cocktail parties

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This economic crisis consists of three parts:

  • Mountains of bad loans, which are weighing down banks and other financial institutions
  • Rapid retrenchment by businesses, which is causing them to cut jobs and investment
  • Trillions of dollars in excess consumer debt, which is forcing households to cut back on spending.

These three factors together are feeding on each other:

  • Because banks are lending less, it’s harder for businesses and consumers to spend.
  • Because businesses are cutting workers so quickly, loan defaults are rising and it’s harder for consumers to pay back debt, and
  • Because consumer debt has risen from 96% of disposable income in 2000 to 130% of disposable income today, Americans are completely maxed out.
  • As a result, any job cuts immediately mean more loan defaults.

Excerpted from Business Week, Why Big Tax Cuts Are Essential, January 10, 2009
http://www.businessweek.com/the_thread/economicsunbound/archives/2009/01/why_big_tax_cut.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

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