Decius, in a prescient post from 2004:

Ever wanted to know what life was like in the 30s? You will.

I still think this is at the heart of what is happening.

A massive stock market bubble blew up in the late 1990's - which were as roaring as the parties felt.
Al Queda stepped in at exactly the right time - at the cusp of a major market collapse which they would have been able to take credit for.
In order to avoid that collapse for both political and war related reasons, the government blew up a credit bubble.
That bubble has burst - but the question is - where will real growth come from?
There is no basis for real growth because, as Obama has been repeating, the American middle class has been thrown under the bus.
A solution to this is coming:
In some respects the credit bubble made this possible - when people's purchasing power is rising they aren't going to be clamoring for a raise.
The rush to offshore was fueled by greed - it doesn't work as well in practice as its proponents claimed and like anything has to be approached thoughtfully.
The political system is rebalancing, much to the horror of the press corps who find themselves among the elite who are facing a higher tax load.
But there are problems:
The symbiotic relationship between the US and China upon which much depends is rooted in America's ability to spend in spite of not producing - which is ultimately unsustainable and must eventually end.
Home prices are only about half way down. There are various policy responses designed to "stop" this. There are two ways to do it, a 20's style crash or a Japan style long, slow crush. I think policy makers are basically hoping for the later - that they can deflate these bubbles the rest of the way slowly - and possibly without much nominal price deflation - while the real economy starts to grow again.

What went down in September was some sort of mistake. "We have lost control." The question is whether or not the situation is back under control again. Regardless, attention must turn to the fundamental problems, which will take a long time to resolve.

We've been sitting on a powder keg since the late 1990's, and although we reduced the size considerably between the last decade and the load that went off last fall, a great deal remains below us. Its possible that it will go off again.

Its also possible that they intentionally set the keg off in September, knowing that an inflection point between administrations would allow us to work off a large amount of the imbalance with minimal political consequences, but they'd never admit to that - it would require acknowledging that a change in the Whitehouse was inevitable.

RE: Old Growth And The Future