the only way to replace this lost equity is to reduce spending.
Consumers were also burdened with the heavy debt-load incurred from the 1980s spending
spree. The combination of debt and the pessimistic outlook of most mean there is little incentive
to borrow. Cornerstones of past recoveries were construction and auto sales, but new-home starts
in the early 1990s were at their lowest level since 1946 and auto sales fell to the lowest level since
1982. The Fed's effective policy of lowering interest rates did not induce consumers to borrow and
spend, which ordinarily would jump-start these cornerstones of past recoveries (Thompson, 1992).
A second area of prime concern was the level of capital spending. Higher profits made
capital investment possible. This led to higher employment levels, reduced costs, and improved
products--all of which boost economic growth.