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WHAT CAUSED THE RECESSION?
To end the economic recession, we must realize what caused the recession in the first place.
-- 11/10/09

Many economists are optimistic that the recession is nearly over. They point to a Commerce Department report showing that the gross domestic product (GDP) and home purchases rose in the third quarter as the reason for their optimism. However this fails to take into consideration what caused the recession in the first place.

The recession was mainly caused by the Federal Reserve System supplying too much cheap credit in the form of low interest rates. This cheap credit enticed people into buying cars and homes they couldn't otherwise afford. So what is the administration's solution? Supply even more cheap credit with even lower interest rates, and provide a "cash-for-clunkers" program and a tax credit to first-time homebuyers. This only encourages even more irresponsible consumer spending.

When economists hail the rise in the GDP, they fail to take into account that the rise is mostly attributable to all the cars and houses bought by the "cash-for-clunkers" and first-time homebuyer-tax credit programs. Since these programs have been discontinued (although there is talk of extending the home tax credit), it is likely that the GDP will dip again in the fourth quarter. In addition, these government programs require more taxing, borrowing and printing to pay for them, and ultimately they only increase the already overwhelming federal deficit.

Meanwhile banks and auto companies are being bailed out by the government using more money the government doesn't have. A trillion-dollar healthcare bill just passed the House of Representatives (H.R. 3962), a cap-and-trade bill is being debated that could tax many businesses into oblivion, and there is even talk of a second stimulus plan. Based on these facts, a slight increase in the GDP in a fiscal quarter is no reason to celebrate.

The unemployment rate has exceeded 10 percent, and it may even be closer to 20 percent when counting those no longer collecting benefits or looking for work. This means that less goods and services are being produced, and with the government borrowing and spending at the same time, the logical end will be the same skyrocketing inflation that crippled the U.S. economy in the 1970s.

Based on the profligate borrowing and spending by the federal government, along with rising unemployment and a doubling-down on the irresponsible policies that caused the recession in the first place, it seems apparent that the worst is yet to come.