QE alone will not handle aggregate demand deficiency. If Aggregate Demand is the sum of Consumer Spending on good and services, Investment in capital goods, Government Spending on public goods and services, and Net Exports (Exports - Imports) then the best we can hope for QE alone to handle is Investment in capital goods by lowering rates and increasing the money supply. Understand just about all the QE going on back to 2008 has been increasing reserves, not actual money in circulation and in the process Debt held by the Fed is up well over 500% since 2008. Roughly $492 Billion in 2008 to well north of $2.705 Trillion at the end of 2014 2Q. The last thing we need is additional QE if no one is doing anything to handle the various economic deficiencies.
For instance, the Labor Participation rate is 62.7% (a 38 year low) and we have 92.9 million Americans no longer in the labor force (an all time record high.) With the government reporting that unemployment is down, we know that "U-6" is still above 11% with no real sign of coming back down below 10% anytime soon. Another for instance, over 2014 we both had a record number and percentage of Americans on one or more forms of government dependence. That "war on poverty" did not turn out so well and with one hell of a cost just to realize dependence in a very permanent way. A last for instance, the conversation we are having in other threads on what is happening to income earnings by quintile as it relates to each being a healthy participant in the economy. The more we move people to the bottom, and keep them at labor rate increases below inflation the more we move money that would speak directly to money velocity right out of the picture.
Our unhealthy economic model has placed us on permanent dependence for the Government Spending part of the equation above. The only way out of this it seems is to do now what we should have done in 2009, shift Government Spending more to infrastructure and technology and then lower regulations in whatever way causes economic growth headwinds. We can no longer afford for Government to squander spending and fill the economy with regulations that put the nation into permanent disability when competing on the world stage. That includes running the highest Corporate Tax rate around with costs that tell businesses to look outside our borders for product. But since we have so much Total Debt now and a Total Debt to GDP ratio above 100%, the only way to handle government spending the right way now economically speaking is to remove government spending the wrong way. Politics will damn near not allow for this but the writing is on the wall with plenty of math to back it up.
Something has to give else we risk staying in this cyclic bubble pop economic model devoid of any control ability and where the model itself is dependent upon government spending to compensate for a decreasing number of middle income earners to take on an increasing amount of debt for wealth in private markets to gamble with. The next pop should be right around the corner, and it may involve currency this time. Not a good thought when considering our fiscal and debt position at the moment.
