Good reminder on why the Fed-led “brilliance” of constantly dragging future demand forward through short-term credit incentives is long-term counterproductive: the future keeps arriving with demand already spent:
“What is being gradually acknowledged – without any publicity or fanfare – is that long-term U.S. GDP trend growth, already estimated at around 2% to 2¼%, is converging towards its 2% stall speed. If so, almost every time GDP growth experiences a slowdown that carries it below trend, it will also fall below the recessionary stall speed.
In this context, a strategy of “pulling demand forward” makes little sense, whether in the context of fiscal or monetary policy. Such a plan requires sufficient potential demand from the future that could be pulled into the present.
Indeed, if there is a long-term pattern of falling trend growth, as we asserted nearly six years ago (August 2008), a “pulling forward” policy becomes increasingly untenable. As we noted last fall, this pattern of weaker recoveries, which Larry Summers referred to as “secular stagnation,” “dooms a policy of indefinitely bringing forward consumption, since demand will fall short when the future arrives” (November 2013).”
See today’s: Burying the Lede for a worthwhile update.
