For now, it looks like the low interest-rate; easy money jump start policies are working out for the American economy. Equity markets are rising, and many economic metrics such as employment, down from about 10% in 2009 to around 7% today, are showing signs of improvement. So for now, it looks like lower interest rate and monetary expansion policies are helping to lower unemployment and fuel economic growth – Just like we discussed in class. In addition, “tale risks” have been avoided for now; the Euro zone is still in one piece and Washington DC did not kill the economy over tax and spending policies. For the moment, it looks like the expansionary Keynesian economic policies are doing their job.
Unfortunately however, Keynesian expansionary pump up policies are primarily designed to jump start an economy that needs to recover from a shock and are not intended to be used on a continual, never ending basis. Such is human nature - naturally, governments have a very hard time taking their foot off the gas. It is very much like an addiction to pain medication. Just take a look under the hood and you will find signs that this recovery is, not that solid. First of all, Washington DC still has much real work to get done regarding tax and spending policies decision making. In addition, some EPS measures show the equity market is overvalued as much as 50%. With profit growth slowing, lower expected EPS, and spendy, indecisive government bureaucrats, greater risks for the equity markets lie ahead unless the fundamentals start to catch up to the lofty valuations and Washington figures out a way to get their job done.
This is interesting, it seems that America is recovering but we're sort of just passing along our problems elsewhere in the globe, which is something critics of capitalism argue is what happens one one sector of the global economy begins to recover.
ReplyDeleteI find it harder and harder to tell whether America's economy is improving, stabilizing or declining. I think this is because of short versus long-term policies politicians face. For example, on one hand, short-term unemployment has lowered indicating economic recovery. But on the other hand "long-term unemployment remains stubbornly high, particularly for young workers". It seems easy to manipulate facts and figures in favor of any argument claiming the state of the economy.
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