Break the Downward Vortex

April 1, 2009 07:00 PM

Linda Smith, Top Producer Executive Editor
Usually, the economy is self-stabilizing, Larry Summers, director of the National Economic Council told USDA's Ag Outlook Forum. "But occasionally—two or three times in a century—the mechanism breaks down and you have a vicious cycle. Prices fall, institutions stop lending, prices fall more, and so on. These vicious cycles come together, leading to a downward vortex. That's what [President] FDR was talking about when he said ‘The only thing to fear is fear itself [—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance].'”
The weak economy needs to be fixed first, he said, through increased paychecks, the largest investment in infrastructure since the 1950s' highway system, and a move toward computerized medical records (which will lower medical costs). "The average supermarket is more information-technology intensive than the average hospital,” he notes.
The second part is financial stability, Summers said. "There is no excuse for a great deal of what has gone on. If credit shrivels up and breaks down, then no matter what the government does, we won't have the economics needed. The loss of a market to sell loans is the reason why banks don't want to lend.
"We must support the housing market,” he added. "We had the mother of all bubbles.
Now we need to:
  1. Make sure families can refinance at a lower interest rate despite a loss of equity as home values fell.
  2. Those who can't make their bills due to job loss, illness, etc., need some support and a lot of pressure on banks to write down payments.
  3. We can't allow financial institutions to collapse.”

You can e-mail Linda Smith at

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