An October poll conducted by the Associated Press and the German research institute GfK showed just how deeply Americans have come to accept the current economy, and how little they expect it to change.
The economy was rated “extremely or very important by 83% of respondents—the highest by at least 18 percentage points of the six issues polled. When asked to describe today’s economy, its total “poor” rating was 54%. When asked whether the economy had improved over the past month, 21% said it had worsened and 60% said it remained the same. Twenty-five percent also expected their family’s financial situation to worsen over the next year, with 44% thinking it would stay the same.
We have lost sight of the obvious. First, the U.S. spent an enormous, unprecedented amount, using both fiscal and monetary policy in pursuit of recovery. Second, and more importantly, it has not worked.
On the monetary-policy front, the Federal Reserve’s balance sheet was roughly $900 billion in 2008, as the financial crisis hit the economy. When the Fed’s purchasing operations ended in October 2015, the balance sheet was about five times greater—approximately $4.5 trillion—the result of several rounds of quantitative easing, which injected unprecedented monetary stimulus into the economy and brought interest rates to roughly 0%, where they still stand.
On the fiscal-policy side, the effort also has been extreme. Federal debt held by the public measured $5.8 trillion in 2008. In 2014, according to the Office of Management and Budget, it was $12.8 trillion. That is a 121% increase, and it’s 74.1% of GDP, the highest level since 1950.
All told, the Fed’s balance sheet increased by $3.5 trillion and the federal debt by $7 trillion in just under six years. And how has the economy responded in the face of this unprecedented stimulus? During those six years, the economy has averaged annual growth of a mere 1.2%—and if 2015’s average thus far is included, the seven-year average is 1.3%.
These figures are as unprecedented as they are enormous.