The American economy is in a severe recession. Coupled with that—as both partial cause and partial effect of the recession—the United States' banking system crashed in the Fall of '08, a crash which in many ways is still ongoing as I write this, nearly two years later.
What the recession and the concomitant banking crisis have caused are, essentially, a fall in aggregate demand levels, as well as a fall in aggregate asset value. In other words, the population is spending less, and asset values have deteriorated, both nominally and as compared to any basket of hard commodities.
These are the two metrics which the two principal camps of current American macroeconomic thought consider vital. “Saltwater” economists look to aggregate demand levels, while “freshwater” economists look to aggregate asset value—each of these camps view their fetish-object as the cornerstone for economic growth, development and prosperity. Naturally, when either of these camps see their juju slide, they freak out. They declare the economy to be “in crisis”—and further declare that “something must be done”.
Something has been done: It's called The Deficit.
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