This is the Cato Daily Podcast for Monday, November 7, 2011.

I'm Caleb Brown, who caused the financial crisis in Great Recession?

In some sense, we all did.

That from Cato Institute Senior Fellow Jeffrey Myron at a Cato Institute city seminar held

last month, this is a portion of his remarks. of course a basically healthy economy can deal with a little bit of excess optimism for a short period just as any individual who got a little bit of excess optimism for a short period just as any individual who got a little bit of excess optimism for a short period just as any individual who got a little

bit carried away by a recent pay raise, a recent promotion, a recent windfall from a relative

who passed away.

If you go out and splurge on a flat screen TV, okay, that doesn't change

everything. But if you start spending at an excessive rate, inconsistent with the income you're

going to earn over your lifetime for an extended period, of course something eventually has to give.

And that's what happened to the U.S. economy in my evaluation.

At some point in roughly 2006 or so, people began to realize that the situation was not sustainable.

W worries about entitlement growth, worries that housing prices just didn't make any sense whatsoever, started to kick in.

So all of a sudden, consumers realized, you know what, we need to start spending less.

We need to start saving more.

We can't afford what we've been hoping we were going to be able to afford.

Businesses realize this, so they're going to cut back.

Financial markets realize this, so of course they're going to crater because the balance

sheets of financial institutions were based on assumptions about the housing market that were clearly inconsistent with any actual reality.

And of course, all that sounds like exactly what we've experienced.

So what's going to happen to that economy?

Well, consumption is going to decline because consumers are

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