Over the last 12 months, the US has had two fiscal stimulus packages - one Republican, one Democrat. The government has run up a 10 percent of GDP fiscal deficit. The fed has cut interest rates to zero. What is the result of all this policy activism so far? Continued recession and a remorseless increase in unemployment. The US unemployment rate is now 9.5 percent, a 26 year high. The economy has shed jobs in every one of the last 18 months, and total number of jobs lost is now over 6.5 million. In June, the US economy lost almost half a million jobs.
Why haven't zero rates and double digits deficit created employment and stopped the recession? Because an irresponsible policy stance today creates huge adjustment problems in the future. Firms anticipate these difficulties when making today's investment and hiring decisions. This brings forward the economic consequences of today's stupid policies.
Fiscal stimulus packages and printing money doesn't create prosperity, as today's US employment numbers so amply demonstrate.
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