One of the concerns about President Obama's 2009 -2010 ARRA and then the "Recovery Summer" of 2010 - beyond the fact that he put Joseph—‘Don’t underestimate Joe’s ability to f*** things up’—Biden in charge, was the economic issue that the $787 billion in stimulus spending would not create any new growth but would only pull growth forward from the out years, minus slippage, grift/graft, marginal productivity of debt and other incidental costs of stimulus programs.
And the headline story, from Real Investment Advice, August 9:
Pulling forward growth over the last decade remains the Federal Reserve’s primary tool for keeping financial markets stable while economic growth rates and inflation remained weak. From repeated rounds of monetary and fiscal interventions, asset markets surged, increasing investor wealth and confidence, which, as Ben Bernanke stated in 2010, would support economic growth. To wit:
“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.” – Ben Bernanke
That certainly seemed to be the case as each time the economy stumbled; Federal Reserve interventions kept the financial markets and economy stable. However, there is sufficient evidence that “monetary policy” leads to other problems, most notably a surge in wealth inequality without a corresponding increase in economic growth.
As noted in the previous articles, current monetary policy has its roots in Keynesian economic theory. To wit:
“A general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers.”
In such a situation, Keynesian economics states that fiscal policies could increase aggregate demand, thus expanding economic activity and reducing unemployment.
The only problem is that it didn’t work as planned because “monetary policy” is NOT expansionary.
“Since 2008, the total cumulative growth of the economy is just $4.05 trillion. In other words, for each dollar of economic growth since 2008, it required nearly $11 of monetary stimulus. Such sounds okay until you realize it came solely from debt issuance.“
The question is whether pulling forward growth through monetary policy is sustainable.
....MUCH MORE
You can't say President Obama didn't try to warn us, I mean "Don’t underestimate Joe’s ability to f*** things up" is pretty straightforward.
The Real Problem With Stimulus
I've mentioned a few times that Keynes was all about the countercyclical thing.
In the U.S. we have devolved to perma-stimulus, every dollar of deficit spending being stimulus, and have no plans to ever stop. Anyone who argues that stimulus isn't stimulus unless it is labeled stimulus is being sillier than I felt when I typed this sentence.
Deficit spending is stimulus whether you call it ARRA,sweet, sweet Biden loveor Democracy's flaw.....
The Biden reference is to the fact the former Vice-President was overseer of the ARRA stimulus in 2009 - 10 and the Recovery Summer in 2010.....
And January 2020 when talk of BIG stimulus started to percolate:The Diminishing Marginal Productivity of Debt in the U.S.
Also known as "Bang-for-the-buck".
Last year it took $1.41 of stimulus to generate $1.00 of GDP growth....
July 2021
Diminishing Returns: Getting Less And Less For Each Dollar of Deficit Spending Means Disaster Is Locked In
April 2022
Mohamed El-Erian: "The Growth Engines Are Sputtering"
We are in a situation where years worth of economic growth have been pulled forward from future years by deficit spending, call it stimulus, call it sweet, sweet Biden love, whatevs; and the only way to keep the hamster wheel spinning is to keep feeding money into the system.....
And many, many more.
