The Big Pictureâ¦ Seems a majority of market commenters are convinced the US is headed for recession and are believers in the bear market. Lately, there has been a veritable blizzard of supportive efforts to stop the marketâs declineâ¦ stimulus spending and rebates, bailouts of everybody, buyout offers, cash infusion from SWFâs, etc. Virtually daily, some days more than one. So whatâs the real deal? Will there at some point be enough âsupport, bailout, stimulus, etc.â to stop the decline and reignite the economy? I donât know the answer, and the problems are potentially so large and complex itâs like contemplating the universeâ¦ the mind boggles. However, these support âeffortsâ will either work or not. If not, it could be for a basic fundamental of âdebt-based consumptionâ. There are various levels of âdebt-financed consumersâ in the US. The most conservative wouldnât frivolously borrow against their home equity or carry a balance on credit cards, regardless. If they want something, they find another wayâ¦ including saving until they have the cash. Another level might ârefi or charge itâ for something importantâ¦ like a new roof, college expense, or their car has had it and they really need another. And somewhere up the levels are those who âlive on the edgeâ of credit. Theyâve borrowed all they can against their home and have charged their credit cards to the maximum. It is the higher levels of credit spenders who are the most interesting here. Theyâve already consumed all of their credit capacity and now might be like âthe ashes of a burned-out fireâ. If the Gummint can somehow get money or credit into their hands, they will spendâ¦. right up the edge to where someone forces them to stop. My premise for this economy is (1) most of us who do not live on the edge of credit will not be induced to do so regardless of any stimulus or bailout, and (2) those who do live on the edge have already burned themselves out. The Gummint may put a few dollars into their pocket for them to spend, but when that is gone (should take about a week), they will once again be completely tapped out. The Gummint and Fed created the housing bubble purposelyâ¦ to put buying power (through increased debt, of course) into the hands of those who would spend it. And they did. Unintended Consequenceâ¦ By creating the housing bubble (including the fostering of irresponsibly lax credit for mortgages) they not only induced spendthrift consumers to âspend everything they have plus all they could borrowâ, they created a problem in the housing market. Many weakly qualified (or maybe not really qualified at all) borrowers financed the purchase of a home and became the âdemand sourceâ of housing at the margin. Their buying pressure induced an excessive price rise AND excessive inventory to be built. Now, these marginal borrowers are âburned outâ and no longer in the marketplace. But the decline in home prices created by their vacating the housing market has left an overhead void which can likely be recovered only through more housing inflation. And with renewed discipline for the âold credit standardsâ of mortgage lending, those spendthrift borrowers will not be back in the market for yearsâ¦ perhaps never. Housing Bottom Lineâ¦. While there still may be even a few more YEARS of decline in home prices and regardless of when they bottom, the recovery will likely take a long time. And whether or not there is a recession in the USâ¦ mild or severeâ¦. rests with the housing market.