I love it when a completely unexpected and unwarranted assumption jumps out of the closet at the end of a story to vandalize a perfectly good economic horror show with a smiley face.
Consensus on U.S. growth this year is around 3.5%…But where will this expected growth come from?
First, the deleveraging process is far from over. In fact, It didn’t even begin…
Second, Congress isn’t debating whether fiscal policy has to be tightened — but by how much… Fiscal tightening is a huge swing from the fiscal stimulus position the U.S. economy currently enjoys.
Third, the Fed is moving slowly to prepare the markets for less monetary stimulus for the economy.
[Fourth:] The consumer sector (which accounts for a bit more than 70% of U.S. GDP)…With credit conditions relatively tight and the need to delever still in place, credit-financed consumption growth is some years off.
[Fifth:] Employment growth is barely enough to provide jobs for new entrants…As a consequence, income- and credit-based consumption growth are unlikely to provide the economic motor with the much-needed fuel that replaces the dwindling monetary and fiscal stimulus fuel.
[Sixth:]This leaves us with the investment and net export sectors of the economy to justify a 3.5% growth expectation…but keep in mind that sluggish consumption growth will likely put a dent in investment spending plans…net exports — the component that feeds directly into the GDP figures — are declining again after three years of improvement. The export sector won’t save the day.
To conclude: The U.S. economy will grow over time, if only for the natural tendency of a free market economy to seek an increase of the well being of its citizens.
In concise, mathematical terms,
– 1 – 1 – 1 – 1 – 1 – 1 (+ free market love!) = growth.
Sure, the economy is going down the crapper, but thank ye, lord, for the impending beneficence of free markets.