Has the U.S. Economy Hit Bottom?
Economics / Recession 2008 - 2010
Jul 25, 2009 - 08:52 AM

By: MISES

Frank Shostak writes: Most experts and commentators are of the view that the worst of the US recession may be over by year's end. My own prediction is for an illusory recovery of government-constructed economic indicators, but nothing more than that.

It is held by most experts that a recession is typically set in motion by various unpredictable shocks. For instance, it is argued that the present recession was triggered by the crisis in the real estate market. Since, as a rule, various shocks tend to weaken consumer demand, it is the role of the central bank and the government to replace this shortfall in demand by boosting monetary pumping and government outlays. Thus, the central bank and the government counter the effects of various negative shocks by means of monetary and fiscal stimulus policies.

The monetary and fiscal stimulus is aimed at boosting overall expenditure in the economy, which (it is believed) is the key for economic growth. On this logic, spending by one individual becomes the income for another.

Following this way of thinking, since September 2007 the US central bank has aggressively lowered its interest rates. The federal funds rate target was lowered from 5.25% in August 2007 to almost zero at present. The yearly rate of growth of the Fed's balance sheet (that is, the pace of monetary pumping) jumped from 4% in September 2007 to 152% by December 2008. ( know more at )