Posted by WARREN MOSLER on February 4th, 2013
Skipping the pros and focusing on the cons regarding the economy:
1. 0 rates (including QE) continue to be a highly deflationary bias that require deficits to be that much higher.
2. The FICA hike’s a serious setback that reduces growth from 3 or 4% to 1.5 or 2.5% or less.
3. Corporate cash building, foreign dollar accumulation, pension fund rebuilding, etc. are demand leakages
4. Past expansions were fueled by things we won’t do again- sub prime fraud, tech/y2k bubble, S&L expansion leg, emerging market fx debt fueled bubble, etc.- and that Japan has been careful to avoid.
5. Global austerity, where, in general, everyone of consequence thinks the problem is deficits are too large when in fact they are far too small for current credit conditions.
The January ‘bounce back’ from avoiding the cliff, debt ceiling delay, ideologues angry at the election results, etc. and the head fakes from the accelerated dividends and bonuses in Dec, seasonal issues with claims, the strong euro, some relatively modest China strength, and a few other things, is all fading fast.