All That Stimilus and Nothing to Show For It
All that stimulus the Fed threw at the economy since 2008 - it now appears clear that there's really nothing to show for it. Not that it wasn't already clear.
The plan, such as it was, consisted of pouring gobs of money onto the economy. The mechanism wasn't literally a printing press, nor were helicopters used, despite Ben Bernanke's belief that such might be used in a pinch. Rather, our central bankers came up with the scheme of buying existing securities in the marketplace. The securities, purchased from banks were bought with digital money which they created by stroking the keys of their computers - literally creating money out of nothing. That digital money, given to banks in exchange for, typically, the bonds they held, was going to fuel economic activity. Banks would lend all this money, once received.
Voila! The frozen financial system, oiled with gears now spinning, would unlock, pick up a head of steam and the economy would shortly respond as banks loaned money to profit-seeking enterprises. Said enterprises, using all the ingenuity for which Americans are famous, would pump out products and services and the pace of economic exchange, after the initial boost from the banks lending, would now feed on itself, boosting economic activity in new virtuous cycle of recovery.
Alas, it never happened.
And today, with 1st Quarter GDP showing a slackening of economic activity a full seven years beyond 2008, we find little enthusiasm on the part of consumers (despite the recent increase in retail sales), they whose economic transactions account for 70% or so of total spending. It would seem the American consumer won't spend, no matter the enticements offered. Apparently, some segment of the population has gotten it into their heads a) not to spend money they don't have; b) to start saving some money if at all possible. This flies in the face of the pattern of borrow and spend that has characterized the American consumer on an increasing basis for decades.
However, there are some exceptions. Cars for instance. People will borrow to get the car of their dreams. And so the car market has been held up as a beacon of light in the otherwise dark and murky economic waters these last few years. Car sales have increased, haven't they? But just as with the hot real estate market of the late 90s/early 2000s, that heat generated by auto sales was generated by credit extended to people who, in saner times, would have been shown the door of the dealership, hat in hand.
Notice there's some divergence here. On the one hand, we're told by the statisticians that consumer spending is weak (again, despite that last retail sales report) and people are saving. On the other, we know that car sales - at least until recently - have been relatively strong and that much of that activity springs from the loose credit extended to car buyers. Apparently the consumer's savings impulse won't stand up to the pressure of owning a new model of a fancy car that in previous generations would have taken years of savings to own.
These divergent trends may illustrate a bifurcated, perhaps better described as bi-polar, consumer: one who has felt the sting (finally!) of too much debt, but one who hasn't yet gotten certain impulsive buying under control. In the case of the automobile, it may not only be lack of control of impulse buying, but perhaps the last vestige of the increasing prosperity - or at least the perception of prosperity - that Americans came to expect as a birthright. And just as in markets, divergence indicates a lack of clear direction on the part of the economy, as well as a lack of conviction on the part of the consumer.
But to return to the original point, that there's nothing to show for all the Fed's stimulus, that's not exactly true. After all, stocks have been in a historic bull market. Bonds have continued their historic bull market. The collectible market, mostly the bailiwick of the rich, continues to astound with each successive auction of paintings and other tangible objects d'art. All that "liquidity" has found a home somewhere: in speculation.
Was that what the Fed wanted - to feed speculation? Wasn't their intention to revive the economy? Goosing speculation benefits speculators, who typically include professional traders and a segment of the wealthy. A revived economy would spread its wings and lift the more common folk. So do you feel lifted up?
And that's why we're saying there's nothing to show for all that stimulus.
The plan, such as it was, consisted of pouring gobs of money onto the economy. The mechanism wasn't literally a printing press, nor were helicopters used, despite Ben Bernanke's belief that such might be used in a pinch. Rather, our central bankers came up with the scheme of buying existing securities in the marketplace. The securities, purchased from banks were bought with digital money which they created by stroking the keys of their computers - literally creating money out of nothing. That digital money, given to banks in exchange for, typically, the bonds they held, was going to fuel economic activity. Banks would lend all this money, once received.
Voila! The frozen financial system, oiled with gears now spinning, would unlock, pick up a head of steam and the economy would shortly respond as banks loaned money to profit-seeking enterprises. Said enterprises, using all the ingenuity for which Americans are famous, would pump out products and services and the pace of economic exchange, after the initial boost from the banks lending, would now feed on itself, boosting economic activity in new virtuous cycle of recovery.
Alas, it never happened.
And today, with 1st Quarter GDP showing a slackening of economic activity a full seven years beyond 2008, we find little enthusiasm on the part of consumers (despite the recent increase in retail sales), they whose economic transactions account for 70% or so of total spending. It would seem the American consumer won't spend, no matter the enticements offered. Apparently, some segment of the population has gotten it into their heads a) not to spend money they don't have; b) to start saving some money if at all possible. This flies in the face of the pattern of borrow and spend that has characterized the American consumer on an increasing basis for decades.
However, there are some exceptions. Cars for instance. People will borrow to get the car of their dreams. And so the car market has been held up as a beacon of light in the otherwise dark and murky economic waters these last few years. Car sales have increased, haven't they? But just as with the hot real estate market of the late 90s/early 2000s, that heat generated by auto sales was generated by credit extended to people who, in saner times, would have been shown the door of the dealership, hat in hand.
Notice there's some divergence here. On the one hand, we're told by the statisticians that consumer spending is weak (again, despite that last retail sales report) and people are saving. On the other, we know that car sales - at least until recently - have been relatively strong and that much of that activity springs from the loose credit extended to car buyers. Apparently the consumer's savings impulse won't stand up to the pressure of owning a new model of a fancy car that in previous generations would have taken years of savings to own.
These divergent trends may illustrate a bifurcated, perhaps better described as bi-polar, consumer: one who has felt the sting (finally!) of too much debt, but one who hasn't yet gotten certain impulsive buying under control. In the case of the automobile, it may not only be lack of control of impulse buying, but perhaps the last vestige of the increasing prosperity - or at least the perception of prosperity - that Americans came to expect as a birthright. And just as in markets, divergence indicates a lack of clear direction on the part of the economy, as well as a lack of conviction on the part of the consumer.
But to return to the original point, that there's nothing to show for all the Fed's stimulus, that's not exactly true. After all, stocks have been in a historic bull market. Bonds have continued their historic bull market. The collectible market, mostly the bailiwick of the rich, continues to astound with each successive auction of paintings and other tangible objects d'art. All that "liquidity" has found a home somewhere: in speculation.
Was that what the Fed wanted - to feed speculation? Wasn't their intention to revive the economy? Goosing speculation benefits speculators, who typically include professional traders and a segment of the wealthy. A revived economy would spread its wings and lift the more common folk. So do you feel lifted up?
And that's why we're saying there's nothing to show for all that stimulus.
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