The inconvenient truth is that absent massive public spending, we would have completed the deleveraging process that was started in 2008 and interrupted with monetary and fiscal stimulus. It can be argued that this borrow and spend policy has done nothing to affect a legitimate economic recovery and in fact, at this point, it is simply adding to the problem.
(3) metrics:
1. Labor participation is at a 30-year low, and in spite of that lack of participation, we remain — four years after the recession ended — at 14.6% unemployment using the U6 figure.
$7 trillion in borrowed money and almost $3 trillion in monetary stimulus has accomplished nothing to date to improve the unemployment situation. At what point do we accept reality? Government stimulus is not helping to resolve the problem and is, in fact, going to make it that much worse when natural market forces outweigh all other forces and we enter into a protracted recession.
2. Excess reserves in the nations banking systems remain at historic high’s stuck in a liquidity trap. This money never makes it to the economy.
3. Money velocity is at a 50-year low at 1.56. Money velocity is the ratio of M2 to GDP. The reason money velocity is so low is that a significant portion of M2 is locked up in excess reserves, and is doing nothing to drive GDP growth.
Why do so many cling to the belief that the Fed is simply a “money printing” machine and will eventually print enough money to get us moving in the right direction? It hasn’t happened despite unprecedented levels of liquidity infusion into the banking system, and there is simply no reason to think that when we wake up tomorrow morning, that will change.
These are different times than any of us have ever encountered. We can bury our heads in the sand and deny the truth or we can, once and for all, accept reality and deal with the consequence of the government excess that has brought us to this point. Simply solving the “fiscal cliff” issue will do nothing to solve the real problem. It is time to accept that truth.
The severity of our economic dilemma is unprecedented, and there is no viable solution other than a completion of the deleveraging process that began with the credit bubble crisis and interrupted — by a government in denial — with massive stimulus. This is not the talk of a “doomsday” prophet — it is the talk of a realist.
