To say that some slowing was to be expected is to inadvertently let the Austrian criticism in through the backdoor. Of course, the situation has given rebirth to the usual economic fallacies. We should worry about the economic effects of the drop in housing investment. Housing is not investment it s consumption. Another one is that the rebound in consumption, that some think has been underestimated, will spur growth.
Growth comes out of investment which in turn is fuelled by savings.
Therefore, significantly increasing consumption at this stage will worsen the situation in manufacturing. Cut interest rates is the current cry and that is exactly what the Reserve is doing. But cutting interest rates amounts to nothing less than trying to inflate our way out of recession. Even if cutting enough did stimulate the economy, it would only be temporary, as was Greenspan s massive monetary splurge in late 1999. The American economy, despite that monetary injection, is still going south.