Why The Second Stimulus Won’t Have Much Economic Impact

A Permanent Loss 

As noted by Zerohedge, the permanent loss in output in the U.S. was shown by BofA previously. The bank laid out the pre-COVID trend growth and compared it to its base case recovery.

stimulus economic impact, Why The Second Stimulus Won’t Have Much Economic Impact

Such aligns closely with our analysis shown above. Given the permanent loss in output and rising unproductive debt levels, the recovery will be slower and more protracted than those hoping for a “V-shaped” recovery. The “Nike Swoosh,” while more realistic, might be overly optimistic as well.

However, this is the most critical point.

The U.S. economy will never return to either its long-term linear or exponential growth trends.

Read that again. 

 

Pulling Forward Consumption Isn’t Sustainable.

If you read between the lines, policymakers are “spit-balling” solutions and making potentially erroneous monetary policy decisions on unreliable data. 

However, the “trap” that lawmakers, along with the Fed, have now fallen into is that “stimulus” only pulls forward “future consumption.” As we saw after the initial CARES act, as soon as financial supports evaporated, so did economic growth.

The hope over the last decade was the economy would eventually “catch fire” grow organically. Such would allow Central Banks to reverse monetary supports. However, such has never occurred. Each time Central Banks reduce monetary supports, the economy stalls or worse.

It is likely that “something has gone wrong” for the Federal Reserve. The ability to pull-forward future consumption through monetary interventions has been reached. Despite ongoing hopes of “higher growth rates” in the future, such will likely not be the case until the debt overhang gets cleared.

We will likely remain constrained in the “spurt and sputter” growth cycle we have witnessed since 2009. We will continue to see volatile equity market returns and a stagflationary environment as wages remain suppressed while costs of living rise.

Due to the debt, demographics, and monetary and fiscal policy failures, the long-term economic growth rate will run well below long-term trends.

Such will ensure the widening of the wealth gap, increases in welfare dependency, and capitalism giving way to socialism.

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