A Short Course on Why The Economy Was Going To Crap Anyway

The first thing to bear in mind is that the Ben Bernank and the other financial experts don't know what they're talking about - or are profligate liars (or both).  Do you remember Alan Greenspan, or the previous secretaries of the treasury in, say, 2006 saying that really bad times were coming?  You don't remember it because they didn't.  Therefore, either they didn't know bad times were coming, or they were lying to serve the "greater good" (making themselves and their friends safe from what they saw coming).

Ergo, why should you believe them now? 

There are some very simple reasons why the economy was essentially destined to start slowing down in the early 21st century.  A recession was inevitable.  Let me outline some reasons:

• The biggest demographic group in the country, the boomers, are entering retirement.  As adults age, their spending slows for a couple of reasons: first, they tend to have a lot of stuff and don't need as much as twenty-somethings, and second, they look at their retirement preparations and start to save a lot more, crimping spending even more. 
• The housing bubble was destined to pop.  The stupid and corrupt practices that led to unqualified people getting loans have been well documented (for example).  The essential thing to remember is that the historical requirements for a mortgage (that your payment was about 1/4 of your gross pay) were there for a reason: when it was followed, mortgages didn't default at a high rate.  This, in turn, says that the price of an average house can't grow faster than an average salary grows, and the housing price was growing much faster.  When that happens, people can't afford houses anymore.
• Generational cycles - sort of an extension of the first bullet point.  In addition to simple curtailing of expenditures of the older generations, the students of this cycle assign a set of characteristics that describe the various living generations.  While I'm not sure I like it as a general rule, it's predictive ability seems decent.   A good summary from a financial planning firm is here.  My version of the short summary goes like this: each generation differs from their parents and strives to not repeat their mistakes.  Boomers were raised by "Ozzie and Harriet" or "Leave it to Beaver" parents ("Greatest Generation" WWII vets).  The boomers became "both parents working" families with latchkey or daycare center kids.  They did this to "get ahead" in a society where there was a lot of competition for every job.  Their kids, Gen-X, are more likely to home school, have one parent at home more often, and are less likely to try to turn themselves inside out to "get ahead" than their parents.   While boomers were the arch-type of the birth control generation, their kids are more likely to have more than just one or more than two kids than their parents.  Because of this, they will have less to spend.  Because they saw the excesses of their parents, they probably want to spend less.  
• The incredibly profligate government spending was going to have to stop.  Not stopping it 10 years ago has only made the need to stop it more dire.  

When you combine all of these aspects, the economy was destined to at least go into a slowdown (a.k.a - recession) as we got past Y2K and into the 21st century.  Winter was already coming.  The actions of the detestable Federal Reserve to keep the "good times rolling" undoubtedly contributed to, helped inflate the bubble, and worsened what we're going through now.  If they had stayed out of it, we would have had, I believe, a more bearable slowdown, rather than the collapse that is upon us.  A Florida winter, rather than a Montana winter.