Stimulus is an idea best suited for a typical recessionary climate. It cannot work though against the tide of forces driving assets into the ground nor against massive popular negative sentiment.
There is just not enough capital available to offset those losses. And people need to believe that it (stimulus) will bring a positive and desired effect. Today, if you ask the average American about their feelings on the stimulus and QE issues you will get responses that range from extreme anger over the level of waste and corruption to suggestions of conspiracy, cabals and bankers in cahoots with government.
Few believe those efforts were undertaken for the benefit of the country. Most doubt that they were effective measures. And many question the validity of the exercise outright. Public sentiment rages against this kind of Government intervention (interference) and it garners very little popular support.
I believe it was because the timing was wrong. The pain in the economy did not yet justify the remedy. Stimulus came too early in the process and was premature in the sense that the public had not time to adjust to what was taking place before government efforts were “imposed” from on high.
In other words, people felt that they were tricked and bamboozled. The bills were pushed through with such speed and urgency that the impression was left in many minds that a dirty trick had been played on the public by government and the financial establishment.
That feeling still resides today and has gained strength. Now there is a backlash against more stimulus measures and a hunger for accountability. Austerity is preferred by many over largesse and Keynesian precepts. We will have a deflationary depression for exactly the same reasons that the Fed efforts were attempting to avoid through monetary policy and credit injections. That is, the public has found a solution to it’s problems that it understands and that it believes will lead to lesser pain in the future. And that acceptable solution is belt tightening.
In short, the people needed to see the results of a painful experience before massive injections of capital (their tax dollars) were injected into the system to bail out banks and auto makers. Had the policy makers actually allowed banks to fail and automakers to close there would likely have been widespread public support for action. Instead we got pre-emptive fiscal strikes on targets that kept moving. Many economists were confused too and were left scratching their heads. What was the rush? To head off a deflation?
OK, now we have the deflation coming. It is now time to sit back and allow the course of history to run unopposed until the public actually demands action and an expansion of monetary policy and fiscal intervention is not just needed but demanded. First the pain, then the medicine. Just that simple.
I did not like stimulus as we saw it because I believe it was injected too early in the deleveraging process. Perhaps it was not enough. It does have a place in the recovery process though but as I have stated I believe that rushing the process was a mistake.
So what I am saying is that timing is really important when it comes to restarting the economy. Now, we will have to wait until a much later date along the curve before attempting resuscitation again.
In the meantime, currency devaluation might yield real results in trade terms. And those efforts at the policy level will not bring on anywhere near the negative reaction or level of disgust from the public that spending to save “too big to fail” corporations has engendered in the national psyche.
- Abegaz
