Sunday, March 10, 2013

Government Bailouts & the Economic Recovery: Never Has So Much Been Done to Achieve So Little

A year after the start of the recession, the Bush Administration launched a $168 billion stimulus package in 2008, which was followed by the Obama 2009 stimulus package of $787 billion.  Meanwhile, the Federal government ran average yearly deficits (also a stimulus) of $936 billion average for 2008 and 2009 (the Bush deficits), and $1.15 trillion per year for the last four years of the Obama Administration. 

On top of the stimulus spending, taxpayer dollars bailed out AIG, Bank of America, Citigroup, GM, Chrysler, Fannie Mae, Freddie Mac.  Simultaneously, the Federal Reserve reduced short-term interest rates to practically zero percent, pushed long-term U.S. Treasury bond rates- adjusted for inflation--into negative territory--and bailed out non-banks such as Goldman Sachs and Morgan Stanley with ultra-low interest rate loans. 

As part of this effort, the Fed launched three bond buying programs, labeled QE2 and QE3, and have thus far purchased almost $3 trillion in U.S. Treasury bonds.   But rather than sparking spending by consumers and businesses, these Fed “cheap money” and government over-spending policies have pushed investors into riskier ventures such as farmland and U.S. stocks and bonds.

What did the U.S. economy get for it?  Since the recovery began in 2009, annualized GDP growth has been 2.1%, significantly less than the historical average of 3.5%.  The most recent growth number was a puny 0.1%, or almost back in recessionary territory.  Moreover since the beginning of the recover, annual wage growth has been less than one percent while the current unemployment rate remains almost three percentage points over the rate at the beginning of the recession.

In terms of the nations most recent recession, it can be successfully argued that, “Never has so much been done to achieve so little.”  Ernie Goss.


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Jack Heidel said...

It's clear that monetary policy alone can't revive the economy. What we need is intelligent fiscal stimulus such as pro-growth tax reform and strategic deregulation.