It's the Economy, Stoopid...

What happens when the economy doesn't get better?

Good question.  Right now, the Fed is using Quantitative Easing, which is essentially the last tool in their playbook.  After this election, they must feel like a quarterback where everybody knows he's going to try and sneak it up the middle.  If it works -- great, if not, the other team probably gets the ball.

And when that other team is recession, that's not good.

The new congress won't pass any further stimulus.  That is pretty clear.  The "Voice of the people" dictated that.  It's all going to fall to private industry to get us out of this mess.

That said, banks have a lot of uncertainty on their balance sheets, with bad loans, the foreclosure mess, the possibility of having to buy back billions of bad mortgages from the government.  So far, you can't rely on them to help.  The manufacturing sector has moved abroad; and even then you need people who want to consume the goods.  The service sector relies on a strong middle class who demands services -- and recently, that middle class has been shrinking and the poor have been rising...  There is infrastructure -- but construction, two of the largest contributors -- is hurting.  There are too many unsold houses and too much empty commercial real estate.

When we get to the point of saying, "We need another round of stimulus", how do we deliver it?  Tax cuts?  Well, people are saving the money and not spending it; as a result, they don't have nearly the bang they should.  Sure, the banks get back some of their funds -- but they aren't loaning it out.   Also, if you give me a tax cut, I'm probably going to invest it.  Investing is good for the economy, right?  Well ... sort of.  I'll invest it where the government is committed to growing a strong and prosperous middle class.  You know, places like China, India, Brazil...  That leaves spending -- which congress will be trying to cut.


So, what next?  You had best be hoping that things just get better on their own.  If that happens, people will probably then give the Republicans lots of credit for having done absolutely nothing, having already forgotten they created this mess in the first place...