"If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand." ~ Milton Friedman
Karl Denninger points out something that has been noted here: the so-called recovery is really nothing of the sort. It's really more of a mirage. The only thing that has picked up is federal government spending. In fact, absent massive gov't deficits, GDP for the last few years would have been negative (red line).
It will be interesting to see how the deficit debate shakes out. Remember, GDP = (I) Investment + (G) Gov't Spending + (C) Consumption + (Exports - Imports). If we decrease "G", GDP will fall. If we raise taxes, "I" and "C" will fall. This is 3rd grade math type stuff.
What we've done for well over a decade is to increase G, I, & C using excessive leverage. Government deficit "stimulus" juices the economy for a short period, but what we are left with is ever-greater debt with no additional means to pay for it. That is why we find ourselves in the cycle of having to come up with stimulus plan after stimulus plan in order to combat the slowing economy (ie. QE in 2009, QE-2 in 2010, extension of Bush tax cuts in late 2010, etc.). Despite what the Krugman's and Romer's of the world want, it's not sustainable. We have been postponing the day of reckoning and making the inevitable worse.
If you ask me (which you haven't, but I'll offer up anyway), I like the take that Todd Harrison of Minyanville had today:
"There is a big difference between a real recovery and debt-induced policy that masks the underlying problems...We should swing the global debt guillotine, share the haircut, swallow the bitter pill and move forward as one, even if the sum of the parts won't be as big as the whole once was -- at least initially.
This would have profound consequences for the entire financial food chain but it's an inevitable step, and if policymakers don't make the right decisions, the market will eventually make it for them."
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