What happens if the bubble never happened?

Many bad things happened to the economy over the past three years. The deficit is huge. Inflation is rampant. The Federal Reserve is printing money. These three subjects, more than any other, occupied the spirit of conscious consumers and businesses lately.

It is crucial to understand how we have here. By their nature, these three subjects of debate is somewhat pointless - there was never consensus. A few figures, however, should contribute to put matters in perspective.

Let's start by declaring clearly. Deficit of today is higher when the recession started in 2007. Even for the overall prices. And the money supply. And all three are not only more high - they are much higher.

Have things fundamentally changed course since 2007, or the past four years was simply an extension of the last decade? Often, the latter is the case.

Take the federal budget deficit. Required approximately $ 1.4 billion this year, more than only 400 billion in 2004. While the deficit of today is huge and out of control, it is, in essence, the continuation of a trajectory defined over the past decade. From 2000-2007, the federal spending erected by 6.22% per year, while tax receipts increased to 3.45% each year.

If the revenue and expenditure from 2007 to 2011 had simply grown at the same pace, deficit of today would be still more than 700 billion dollars - what it is now, but much higher that most would be comfortable with. Interestingly, nearly half of the increase in $ 700 billion of the actual deficit towards recession mandatory expenses such as food stamps and unemployment benefits.

Then there is inflation. The consumer price index is now 5.7% higher than it was when the recession began in late 2007. This is the average growth rate of 1.75% per year, a statistic that many people are miserable. From 2000 to 2007, however, the index increased by 2.65% per year. It was at the same rate since the beginning of the recession, overall prices would approximately 2% more that they are now. Even during the past year, when the inflation worries began really surprising investors, the growth of inflation remained consistent with the 2000-2007 average.

Finally, we will go to the money supply. Since the recession started in 2007 and the Federal Reserve took swinging, M2 (a large monetary metric) increased from 5.51% per year. It is high, but not as high as annual clip from 6.22% in which it has risen from 2000 to 2007. Was M2 has followed the same path over the three years she made seven currency, previous supply would have 200 billion higher than it is today. (How that is, after the quantitative expansion of the Fed programs?) Because most of the money "printed" during EQ never entered the economy; (He remained to the Fed as excess reserves held by banks.)

This relieves the decision-makers of the seriousness of our problems. Instead, it shows that the root of so many of our problems has not started with the bursting of the bubble, or the entry of new political leaders. These disorders have started at least ten years ago. They are deeply rooted disorder who have more to do with the culture long any response to a recession.

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