The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis...

Main Street consumers have overspent and over-borrowed and are unable to meet their obligations...

Consumption has been above sustainable levels and needs to adjust down, whatever view one has about the responsibility of adults over their financial decisions.

The adjustment of private consumption to sustainable levels is necessary, but is likely to have a negative influence in the short run on the growth of aggregate demand... put downward pressure on world growth.

Sustainable growth is not the consequence of an unsustain­able consumption boom but of the progress and diffusion of science, technology and innovation...

An efficient adjustment to the US over-consumption imbalance (and Chin­ese under-consumption) in a way that does not hurt longer-term growth should be based on compensating for the decline of US consumption with an increase in domestic investment and in consumption abroad. It should not be based on giving the US consumer more rope with which to hang himself... giving US households a $1,000 cheque by April, a trick that no macro­economic textbook would argue is particularly effective...

This essay is extremely clear and paints a stark picture.

The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis...

Main Street consumers have overspent and over-borrowed and are unable to meet their obligations...

Consumption has been above sustainable levels and needs to adjust down, whatever view one has about the responsibility of adults over their financial decisions.

The adjustment of private consumption to sustainable levels is necessary, but is likely to have a negative influence in the short run on the growth of aggregate demand... put downward pressure on world growth.

Sustainable growth is not the consequence of an unsustain­able consumption boom but of the progress and diffusion of science, technology and innovation...

An efficient adjustment to the US over-consumption imbalance (and Chin­ese under-consumption) in a way that does not hurt longer-term growth should be based on compensating for the decline of US consumption with an increase in domestic investment and in consumption abroad. It should not be based on giving the US consumer more rope with which to hang himself... giving US households a $1,000 cheque by April, a trick that no macro­economic textbook would argue is particularly effective...

This essay is extremely clear and paints a stark picture.

Many of these points were made elsewhere earlier in the week:

The current slowdown is layered on top of deep-rooted economic problems that are not addressed by a stimulus package. If the nation’s leaders do not start showing the political will to do more than dole out popular tax breaks during an election year, short-term fixes could actually make the long-term problems worse.

For all its power, the Fed cannot change this troubling fact: trust in much of the financial system -- banks, brokerage houses, ratings agencies, bond insurers, regulators -- has been severely damaged by the subprime mortgage crisis. And that damage cannot be reversed with a quick cut in interest rates.