Here’s the problem as economist Edward Harrison puts it:
1. The private sector (particularly households) is overly indebted. The level of debt households now carry cannot be supported by income at the present levels of consumption. The natural tendency, therefore, is toward more saving and less spending in the private sector (although asset price appreciation can attenuate this through the Wealth Effect). That necessarily means the public sector must run a deficit or the import-export sector must run a surplus.
2. Most countries are in a state of economic weakness. That means consumption demand is constrained globally. There is no chance that the U.S. can export its way out of recession
3. without a collapse in the value of the U.S. dollar. That leaves the government as the sole way to pick up the slack.
4. Since state and local governments are constrained by falling tax revenue and the inability to print money, only the Federal Government can run large deficits. 5. Deficit spending on this scale is politically unacceptable and will come to an end as soon as the economy shows any signs of life (say 2 to 3% growth for one year).
Therefore, at the first sign of economic strength, the Federal Government must raise taxes and/or cut spending. The result will be a deep recession with higher unemployment and lower stock prices.
Slog. Accept it. Shortfall, however sloppy, will be made up by the federal government.
We will not return to what failed. We will slowly reduce the bleeding of energy overhead and carve a new horizon of services and trade. Watch for it. Patiently.