Historic Stimulus Fails to Lift the Economy Out of Its Funk

The mainstream financial media likes to proclaim that the economy is recovering and that deflation is nowhere in sight. For example:

No one thinks deflation is very likely. (Financial Times, May 23)

But, now, the economic handwriting on the wall is spelled out so clearly that even a few in the financial media have started to talk about contraction instead of growth.

A recent commentary in MarketWatch titled, "Economy skids dangerously close to contraction," points out how the numbers look going into the second half of the year:

Following the releases of tepid reports on retail sales and inventory accumulation [on July 15], forecasters marked down their GDP expectations from 1.4% to 1.1%. ... The surprise was that U.S. consumers were more cautious as well. ... Most retailers reported weak sales for the month. ...

Most people have been expecting a weak first half of the year. ... But the assumption has always been that the economy would pull out of its funk in the second half of the year.

Marketwatch, July 15

The Marketwatch commentary added that “[w]ith the tax hikes and sequester fading into the rearview mirror, there's reason for optimism. But there's no room for complacency." [emphasis added]

"Complacency" is the exact word that was used in the May 2013 Elliott Wave Financial Forecast. Referencing the Financial Times quote about deflation not being likely, EWI analysts said that there is a "remarkable level of complacency about deflation," especially considering a "continuous fall from the beginning of 2012" in personal consumption expenditures.

So, what is the Federal Reserve planning to do now? Fed Chairman Ben Bernanke told Congress on July 17 that "with inflation running below the Committee's longer-run objective [of 2%], a highly accommodative monetary policy will remain appropriate for the foreseeable future."

However, so far, the prior stimulus has failed to lift the economy, and there's no reason to believe that more bond buying will rescue the economy either.