Anybody who thinks this recession and bear market mentality will be quick, shallow, and relatively painless had better ditch the rose-colored glasses. I fear there's a dirty little secret, and it represents a big problem: In general, the American consumer has become recklessly indebted, and it's simply unsustainable. Our current problems go well beyond the simplistic "subprime mortgages are the root of all evil" roots.

Dingaling economics
The dirty little secret I suspect many don't want to acknowledge (although I'm starting to hear more and more whispers about it) is that if/when the American consumer realizes how unsustainable the debt-fueled lifestyle has been, the economy will contract, and hard.

Consumer spending contributes more than 70% of the U.S. economy, and for the last 10 years or so, I fear that so many were spending on credit or bubble-inflated assets. That kind of spending has been a major contributor to the "consumer resiliency" factor, which often seemed mystifying and remarkable. Remember the talking heads over the years? "Boy, the consumer just keeps on spending! That's really something!" It was "something" all right, and I believe that that "something" wasn't good.

The banks may need to unfreeze lending, but let's just hope the current policy aim isn't to force them to return to exactly what caused all this: loosey-goosey lending, speculative short-term mind-sets, and encouraging everyone to spend money they don't have.

We've got problems
Major financial companies like Bank of America (NYSE:BAC), JP Morgan Chase (NYSE:JPM), Capital One (NYSE:COF), and American Express (NYSE:AXP) have all reported increasing delinquencies and charge-offs related to their credit card businesses, pointing to more pain even beyond mortgages. (And there may be another catastrophe brewing in housing, too.)

Meanwhile, ponder the increase of six- or seven-year auto loans, which seem particularly absurd when you consider car values depreciate the minute you drive them off the lot. These surely helped General Motors (NYSE:GM), Ford (NYSE:F), Honda (NYSE:HMC), and the like in the last decade, but consumers who took the bait are probably upside down in their car loans now, too.

There are some staggering statistics out there, such as the average household owes $110,000 in mortgage and other debt, and is only able to scrape together annual savings of a measly $400. Then there's the whopping $2.5 trillion Americans owe on credit cards, auto loans, and such. There's plenty of evidence that people have used debt not only to keep up with the Joneses, but in some cases, just to keep up.

I believe a lot more consumers than we'd like to think are over their heads after having spent all they had, all they thought they had, and even more that they kinda sorta thought they might have one day.

Help or hurt?
I am among those who suspect the government bailout and intervention will likely make things worse. As much as the media keeps talking about how President Hoover's initial failure to intervene caused the Great Depression, some respected economists from the Austrian school of economics claimed the Federal Reserve's policies to expand the money supply actually set the stage for the disaster, and further intervention just made it deeper and longer to boot.

Some of us fear the Fed's and Treasury's moves will spark inflation, if not hyperinflation, and our government's increasingly high deficit spending makes campaign promises of tax cuts sound like a pipe dream. This will likely be very hard for many of us, particularly for savers who did nothing wrong.

Recessions are part of the economic cycle, and this one is sorely needed in light of how the housing bubble and the consumer credit frenzy arguably made the last recession artificially shallow and short. We must collectively pay off our debt, and remember cash is king. This may be ugly in the short term, but fiscal responsibility is the real medicine we need. (Glimmers of hope: an economic report came out yesterday saying that consumers paid down debt for the first time in 10 years.)

Be honest, be brave
As much as I believe the short-term situation is nasty and we have a lot of tough work to do, and a lot of excesses to wash through the system, I also believe there is great opportunity for investors, even if we don't see our stocks bloom for years (true long-term investing).

The nature of bear markets is panic and that the end is nigh. We must remember that when times are good, it's easy to smugly say we will buy "when the blood's running in the streets," but when we're confronted by the bloody, downright gory, streets and the sights and sounds of fear, it's far too easy to freak out and sell or cower on the sidelines, in bomb-shelter mode.

We mustn't lie to ourselves; these are bad and scary times. However, we should also remember that Americans have boot-strapped through tough times before.

For those who can invest, seek out strong companies with great brands, excellent managements, ample cash, and little or negligible debt, and truly think long term, not about stock prices tomorrow or next year.

Last but not least, the big lesson; credit can be a tool, but when given and used unwisely, it can be a dangerous, dangerous thing, as we see now. That will be a lesson well learned if we want to survive and thrive over the long haul.

Check out some related Foolishness: