Over the years of deficit spending, the economy has become more and more dependent on that deficit spending.
When the U.S. government borrows money to stimulate the economy, that money does, indeed, stimultate the economy. Economic activity that is begun from this government spending and "stimulating" theoretically gains momentum and private sector spending creates further growth, allowing the government to reduce its spending.
In the past, the manufacturing and industrial base of the U.S. economy, along with the massive amount of budgeted, nondeficit defense spending, allowed the economy to recover once the stimulation of government spending had begun, and allowed the reduction of deficit spending, though not the complete elimination, nor the repayment of the deficit. Because of this, deficits grew, and the debt grew. What this has created is a structural deficit in spending, and a dependence of that spending in the economy, or an economy that is becoming more and more dependent on government spending, in order to grow. The government must continue to spend money to give the appearance of growth, because the economy itself does not pick up the slack that removing the government spending would create.
But, the increased spending during recessionary periods usually stimulated activity, and created enough economic activity to begin a recovery.
Unfortunately, that is not the case anymore. The stimulus that is being applied does create some activity and demand, but once it is spent, in order to maintain whatever momentum has been gained, that spending must continue. The stimulus money runs out before the organic growth of the economy can take its place, because, basically, we do not have a manufacturing industry in this country anymore.
Along with the loss of the manufacturing base, another huge contributor to this problem is that we have ceased to be an equity based economy, and become a credit based economy. People used to save thier money, and purchase items that they wanted, and only use credit for big ticket purchases such as houses and cars. This is no longer the case. Now, people use credit for almost everything. TV's, Cell Phones, Computers, iJunk, whatever, they just charged it, and most people have reached their credit limit.
With the burst of the housing bubble, and ~10% unemployment, most people are so far in debt that they just cannot resume the consumptive lifestyle that was being led before. People bought houses that were more expensive than they could afford, because credit was cheap. They depended on the ever increasing inflation of the value of those houses to get them out from under the debt "in the future". They took out HELOC (Home Equity Line of Credit" loans, home equity loans, and 2nd mortgages. They used this money to pay off the MasterCard and the Visa, and then they loaded them up again.
Why not? The house would gain 10% per year in value, they would sell it in a couple of years, and pay it all off, right????
Well... Not so much, huh?
So, here we are.
- We have almost a Trillion dollar structural deficit in our economy.
- The Fed is trying to manipulate the numbers in any way that they can to show that there is some kind of hope that the economy will pull out of this.
- We have sold so many Treasuries to China that they are no longer interested in ammassing more of our debt, and are starting to minimize their exposure to it.
- We have an economic system that we demand to grow, daily, and show profits.
- We have approximately 50,000 people per month making their first time entry into the work force, and there ain't no jobs for them.
- Stimulus has created some jobs, but we've lost more. (It's math. If unemployment is ~10% now, and it was lower earlier, then we have a net loss in jobs.)
That is where we are. We can point at Obama, Bush, Clinton, Bush I, Reagan, Carter, hell we can point back for the last 40 years, and we would not be pointing at the wrong guy. They all put us here.
The problem is that we have to let this thing deflate, and get back to a sustainable level, or it will never be stable and sustainable. We have to let the economy be what it is, a system that will always try to reach a point of equalibrium, and not expect any type of exponential, ballistic, eternal growth. No system is capable of sustaining exponential permanant growth.
Or, we can throw another Trillion Dollars at it that we simply do not have, and watch it disappear just as fast as the last Trillion did. We can kick the can a little further down the road. We can pretend that it'll all be better soon. We can keep worrying about birth certificates and qu'rans. We can keep bashing Palin, and Beck, and Olberman. We can keep making fun of Fox. WE can keep sqabbling like kids in a school yard about Left/Right, My side/Your Side, Us/Them. How's that working out for us so far?
We can keep pretending, and being lead along like the sheep that most have begun.
Obama, Bush, Clinton, Bush I, Reagan, Carter, Pelosi, Reid, DeLay, Gengrich, they are all the same guy, just in different color suits. The only difference in any of them is who gets rich off the corruption and graft that they bring to Washington.
The economy has not shrunk as much as it needs to. They might be able to prop it up a while longer, but eventually, it will implode, and we will have to face the music and the pain that will come with that.
And I do not see, hear, or read anything, anything at all, that is addressing the problem, and trying to fix it coming from either side. I just keep hearing the same, old, tired Party Crap.