Capitalism in America, is it really Working?

This week I had a moment of realization that our nation's economy is built up, and dependent on the concept of people spending beyond their means. Getting loans from financial institution that they are now having to walk away from because the economy is so bad. Now that the economy is stalled, people are getting their acts together and beginning to live within their means. But that also means they're not out getting loans to stimulate the economy. So the economy remains as bad as ever. What will eventually happen is people's confidence will grow, and then they'll get the loans and go about living beyond their means again. And thus the cycle will begin again. Are these occasional crashes and restarts just a part of the Capitalism life-cycle? Is it the price we must pay to live the way we do? And what is the alternative? What happens if people everywhere continued to live within their means. To make do with less? What happens to capitalism and the American way of life then? Can it evolve beyond it? Can it even survive? Or is this just a horrible mess we're forced to continue to live in forever and ever amen?