We are far enough and deep enough into the most heroic monetary and fiscal efforts ever undertaken to finally ask,why aren’t these measures working?
Or at least we should be. Oddly, many in DC, on Wall Street, and the Federal Reserve continue to steadfastly refuse to include anything in their approaches and frameworks other than “more of the same.”
So we are treated to an endless parade of news items that seek to convince us that a bottom is in and that we’ve ‘turned the corner’ – often on the flimsy basis that in the past things have always gotten better by now.
The framework we operate from around here is simply encapsulated in the observation that there has never been global economic recovery with oil prices above $100 over barrel. That is shorthand for the idea that oil is the primary lubricant of economic growth and that it is not just the amount of oil one has to burn but also the quality, or net energy, of the oil that matters.
If we want to understand why all of the tried-and-true monetary and fiscal efforts have failed, we have to appreciate the headwinds that are offered by both a condition of too-much-debt and expensive energy. Neither alone can account for the economic malaise that stalks the world.
Getting a Little for a Lot
Trillions have been printed and injected into the world’s economies, and yet things seem to be barely limping along, requiring constant attention and interventions from both fiscal and monetary authorities.
The broadest measure of money in the U.S. is Money of Zero Maturity, or MZM. Note that it has increased by an astonishing 44% since the start of the crisis:
We could similarly look at the Federal Reserve balance sheet, or excess reserves, or a dozen other indicators that all say the same thing: The money supply has been expanded enormously.
And what do we have to show for it?
Since 2005 real – that is, inflation-adjusted – GDP has only expanded by 0.9% on an annualized basis. On a nominal basis (not inflation-adjusted), the number is only 2.9%, far below the 5%-6% required to sustain a banking system dependent on exponential growth in that range.
In a very nice piece of work entitled Our Investment Sinkhole Problem, Gail Tverberg put up this handy and extremely important chart: