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It might sound like an oxymoron, but our economy does not depend on consumption. At least not entirely. Consumption is just a single part of our economy, albeit a large one. Investing, savings, retirement planning… These are all important aspects of our economy.

Don’t get me wrong. Consumption is a very important part of our economy. However, there is the distinction of immediately consumable goods vs. appreciating consumable. For example, a diamond ring is a consumable good. However, a diamond ring is going to last much longer than leasing a BMW for three years. Purchasing a California (or your state) Municipal bond might not have those great returns like Wall St, but your gains are not taxed, and you are investing in the infrastructure of your state.

We let consumption exceed the level at which consumption is health for our economy. We still need consumption, a lot of consumption. However, we need not consume to the point that we borrow to pay for what we have already borrowed.

Contrary to the belief of many politicians, banks don’t need to start lending more. Banks need to keep their lending restriction tight for at least the next six months. The problem we are in now is that we need to completely shock the system, hit the bottom, and climb back out. Big dollar bailouts that are going to be wasted on buying bank stock aren’t going to save us. Government bailouts of antiquated, obsolete automakers are not going to save us. The cost of a failed business model should be a failed business.

Sure, this would hurt. Tens of thousands would lose their jobs. The ripple effect would be severe. Unemployment would reach record highs. States would struggle with meeting their budgets. The federal government would still have a deficit. And the pain would last 6-9 months.

This is what we should have done more than a year ago. If we were to attempt this now, we’d strangle the economy. But this wouldn’t be the first time this was done. This was done in the early 80s to kick start the struggling economy of the late 70s. Now, we are pretty much in a position where we need to still buckle down. We need to start saving, not spending more.