I'm continually puzzled as to why the fundamental concept of a balance-sheet problem hasn't filtered through the very-important-people-in-power. Is it really so difficult to look at the massive period of private sector deleveraging? If that's not the difficult part, is it difficult to draw a simple conclusion after that?
Goldman's US Chief Economist Jan Hatzius makes a visual point in a note which I've lifted of Business Insider. Essentially what he's stating unequivocally is the importance of monitoring the gaps between spending-income/saving-investment to see whether things are improving:
"...underneath the fiscal drag the fundamentals in the private sector of the US economy are improving. The key force behind this improvement is the gradual normalization in the private-sector financial balance, i.e., the gap between the total income and total spending--or alternatively, the total saving and the total investment--of all US households and businesses, from levels that remain very high. When the private sector balance is high, the level of spending is low relative to the level of income. A normalization then means that spending rises relative to income, providing a boost to demand, output, and ultimately employment and income. The induced improvement in
income then has positive second-round effects into spending."
Krugman might be pleased. It is aggregate demand after all!
Goldman's US Chief Economist Jan Hatzius makes a visual point in a note which I've lifted of Business Insider. Essentially what he's stating unequivocally is the importance of monitoring the gaps between spending-income/saving-investment to see whether things are improving:
"...underneath the fiscal drag the fundamentals in the private sector of the US economy are improving. The key force behind this improvement is the gradual normalization in the private-sector financial balance, i.e., the gap between the total income and total spending--or alternatively, the total saving and the total investment--of all US households and businesses, from levels that remain very high. When the private sector balance is high, the level of spending is low relative to the level of income. A normalization then means that spending rises relative to income, providing a boost to demand, output, and ultimately employment and income. The induced improvement in
income then has positive second-round effects into spending."
Krugman might be pleased. It is aggregate demand after all!
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