With the recent surge in geopolitical volatility (which nobody could have foreseen of course), it is easy to forget that the US economy is still deep in the abyss of a transfer process that sees trillions in capital needed to be funded by the government and plug holes in the private sector. This is not news and anyone who has followed Richard Koo over the past two years is fully aware of this: all of this is fully recreated in his latest presentation reproduced below. What is interesting is the addition of exhibit 23, which notes something very important: namely reality. Koo observes, very keenly, that "sustaining fiscal stimulus in democracy during peacetime is difficult" (of course, in authoritarian regimes nobody cares about stimulus until inflation surges to the point where the bulk of the population, which knows it has no other recourse, sees no other option than to revolt). Which leads to the question: so what? If fiscal stimulus is difficult (and virtually impossible after trillions have already been spent with little/no effect) in peacetime, does this mean that democracies are forced to turn to war as the only possible recourse (it worked with the Great Depression)? Or, alternatively, continue relying on the Fed for monetary stimulus, which however as we have all too vividly seen, is the bluntest instrument available, and tends to lead to the very same regime destabilizing revolutions that one may say are pursued by the abovementioned "democracies." The natural outcome is that instead of building up resentment against the political system, the population personifies the chairman of the Federal Reserve with the Devil, thereby deflecting anger from an impotent cadre of politicos. Yet regardless of the nuances, the bottom line is that without continued trillions of debt-funded injections in some form, the economy stagnates, and becomes another Japan case study.
Koo's prophetic exhibit:
Latest always informative Richard Koo presentation: