The Demand Side Dilemma

For those tempted to argue the source of our woes was that government stimulus wasn’t big enough, remember that spending our way to prosperity has failed—every time it’s been tried. WPA and TVA didn’t bring us out of the Great Depression; that would be WWII, and it was a full 16 years after the Depression’s start. Would anyone like another 13 years of what we’re currently experiencing? More recently, it was massive stimulus that handed Japan its lost decade; government spending increased like a hockey stick, while accompanying GDP growth flat-lined.

We’ve seen GDP growth inch up every time another round of quantitative easing is introduced. Like a castle made of sand, it dissipates once said quantitative easing cycles through the greater economy. Now Bernanke and the Fed have nowhere else to go. As Peter Schiff recently told me, “there is no way to get through this without pain. The longer we prolong it, the pain only increases and it delays what’s to come anyway.” With a wrecked economy, the president’s approval rating below 40%, crushing debt and a Fed with an empty quiver, that time—for better or worse—is now.