Alhambra Investments advises:
The extraordinary extends to the economy and economic policy as well. The Fed has kept interest rates at zero for 6 years now and their expectations setting forward guidance says 7 is in the bag. For all those who worried that the US might turn into Japan, well worry no more, that ship has sailed. Over a half decade of zero interest rates says we already have become Japan, with the same demographic, productivity and structural problems so well documented. High taxes, a shrinking workforce, offshored production, protection of large incumbent firms, political gridlock, a falling savings rate, a growing xenophobia and an affinity for sushi all point to America as the economic kissing cousin of the land of the setting sun. Turns out the Vapors were not just one hit wonders but keen eyed economic forecasters as well.
The US economy isn’t acting normally, now in the 6th year of an anemic expansion the likes of which we haven’t seen since, well, never.
That last line isn’t entirely true. The last time we had a major government-induced financial collapse was in 1929, and the government responded by jacking spending and taxes, while going to war against private enterprise — and the result was the Great Depression. Back then, the Fed sucked jillions of dollars out of the money supply, so GDP shrank or was stagnant. This time, the government responded by jacking spending and taxes, while going to war against private enterprise — and the result was the Great Recession. The Fed has injected trillions into the money supply, resulting in what looks like another stock bubble, and the illusion of GDP growth. But the most important result, millions permanently unemployed and increasingly unemployable, is no different from the Depression.