Tight belts might be a way of life for awhile
The steady and substantial increase in default rates on SBA-backed loans since 2005 is nothing if not a strong indication of the potential problems that can be caused when banks toss out their traditional lending playbook.
The numbers serve as a microcosm for the entire economic problem now afflicting us: Low interest rates for too long increased our national indebtedness and spurred widespread stupidity among both lenders and borrowers. That credit boom was bound to crash sooner or later because too much debt is not good for anyone - be it a person, a business or a government.
Yet as policy makers search for solutions out of this mess, it's also evident that we're going to have to accept a higher level of indebtedness, at least temporarily. And that indebtedness will not be borne by the private sector, because both lenders and borrowers are too skittish right now, rendering impotent low interest rates as a means to encourage economic activity.
That debt will be borne by the government, despite the pleas of economic conservatives who gnash their teeth at the amount of federal spending. Trust us, we don't like a government that is awash in red ink any more than the staunchest of budget hawks. We're fully aware that too much debt is dangerous, and could have potentially devastating economic consequences down the road if our big lenders - like China - suddenly pull the rug out from under us. But now is not the time for policy makers to suddenly get religion when it comes to spending.
With a few exceptions like Wal-Mart, most companies are treading water and slashing jobs and wholesale lines of business in an effort to stay afloat. If the government were to start acting the same way, we'd have nowhere else to turn, and the recession that we now have would become more like that other word, the one that starts with a 'D.'