NEWS FLASH: We are spending more money than we have- oh wait, this isn't exactly new. While the recent years have boasted increased deficit spending (5-6% of GDP) it was definitely unavoidable (unless you like depressions???). Bernake's concern for this rise in deficit spending is justifiably calm since we have bigger fish to fry. The recovery is going- but it is slow and the effects of all the money the Fed has been pumping into the economy these past few years is hardly apparent.
As people begin to shake off the fear of impending doom, we are still unaware of the long-term effects of this extreme swing in the business cycle. The jobs bill that Obama pushed through Congress is really just another stimulus package and banks are still hoarding reserves, which means Bernake is obligated to keep interest rates at nothing until they decide it is safe enough to lend those fund out to the public. Once banks kickstart their fractional reserve systems and this liquidity is freed up we can begin to expect higher prices, rising nominal interest rates and bigger inflationary expectations. This may be the point when we want to start reigning in the deficit- but not now.
Another testament to the state of the economy is our unemployment rate, startlingly enough the NYT declared that 44% of the unemployed have been actively looking for jobs for over 6 months- uh oh. With this recession coming to a close we must ask ourselves, are these jobs still there? Could this recession have taken them with it? This may sound preposterous but that is entirely possible. The U.S. has been terribly unproductive in several industries *cough* automobile *cough* and this could be the time to abandon shop and search for other industries we have comparative advantage in- just a thought. Usually the majority of the unemployed find jobs quickly, and the fact that that it is becoming less common should set off alarm bells! What could this mean for unemployment insurance, welfare, and Medicaid- Oh MY!
I would wait on that deficit, or at least like a job first!
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