WASHINGTON–Suddenly, it seems, Americans are getting hit from all directions.
Energy and food prices are soaring. The housing market continues to collapse. Government revenue is falling, taxes are rising. Airlines jack up fares and fees while reducing service. Banks are pulling credit lines. Auto companies continue to cut production. Even investment bankers are losing their jobs.
The tendency is to see these as separate developments, each with its own causes and dynamic. Fundamentally, however, they are all part of the same story – the story of the global economy purging itself of large and unsustainable imbalances that for a time allowed many Americans to think they were richer than they really were.
Most Americans understand that an overabundance of cheap, easy credit created a housing bubble that artificially inflated the price of land and housing, produced too many homes and homeowners, and persuaded too many Americans to dip into their home equity to support a lifestyle their income could not sustain. Now that the bubble has burst, we are coming to accept the reality of lower prices, reduced production, declining home ownership rates and the wisdom that a house is not an ATM or a substitute for a retirement fund.
The right enemy
5 years ago