Recently, Federal Reserve Chairman Ben Bernanke stated that the United States economy ‘will remain sluggish until the middle of 2008.’ For those of you not involved in the business world, the Federal Reserve (or the Fed) is the central banking system of the United States (i.e. it controls the entire country’s money supply). Let me use an example from my macroeconomic theory class to explain how the Fed functions.

If a wave of credit card fraud suddenly hits and our demand for cold hard cash rises, interest rates (the cost of borrowing money) would likewise increase. In order to lower interest rates back to their equilibrium, the Fed would increase the country’s supply of money. And afterward all would be well and bright again ‘ in theory, that is.

So what is the main cause of our economy’s sloth-like reflexes? Answer: the July 2007 sub-prime mortgage crisis.

Huh? Sub-prime mortgage lending (also called ‘second-chance’ lending) is the practice of dishing out loans to borrowers who have had abominable credit history. This type of lending is obviously quite controversial due to the very high risk of foreclosure (when the bank takes your house when you’re broke).

Prior to July of this year, the number of people who could not pay their mortgage (even with their handy-dandy loans) sharply increased, and lending companies could not compensate for their losses, which led many of them to bankruptcy. The rise in foreclosures produced a cataclysmic effect (leading to the ‘credit crunch’) and was recognized as a global financial crisis in July. And now the economy is slow.

‘ Uh huh, so what? Well for one thing, the economy’s well-being influences whether or not you will be jobless.

But the question I really want to ask is this: What should Ben Bernanke do? He plans to cut interest rates again next month ‘ supposedly ‘ but this will make borrowing money easier and there already is not much money to go around in the first place (thanks to the burst of the housing bubble).

What would I do? Two words: Ayn Rand. Read her books ‘The Fountainhead’ and ‘Atlas Shrugged.’ Then think, if you were the Fed chairman, what would you do to resolve this financial calamity? Personally, and influenced by the writings of Rand, I would not trust money to people who have had a history of being less than thrifty, no matter how well the economy is doing at the time. If people do one thing wrong, they are highly likely to repeat it. Now to compensate for my loss of money and the resulting mortgage crisis, I would hold people’s property until they are financially able to pay back what they borrowed in a reasonable amount of time.

And so the point of this entire cluttered, economic-jargon-filled article: The state of our economy constantly reflects our current standard of living. Read The New York Times and The Wall Street Journal (yes, give your brain some exercise and skip ‘Fox News’). Do not sit there on your couch and wait for it to hurtle through your window and land unexpectedly on your lap while you watch the Giants lose again. Know what is happening and get out of the way before the economy crashes.