Stimulus Anyone?

The pressures are certainly mounting for more stimulus well beyond the just passed unemployment benefits extension. And here is where the immovable object runs up against the irresistible force; Obama and crowd certainly will be pushing for more stimulus, especially with a mid-term election in the offing and Republicans can be well expected to push for more austerity. Their line will be that government debt is too massive and we need to pull back spending. There are very plausible arguments for both sides of the spectrum and, personally, I am not convinced either is right or wrong.

Certainly, if you believe me or a growing majority of folks that we are teetering on the edge of a double-dip recession, then there is certainly a strong Keynesian push to print dollars and avoid this situation. Nonetheless, there is a plausible argument that doing so simply builds government debt to increasingly dangerous levels and only serve to kick the can down the road. With GDP adjustments announced this week it is pretty apparent that the trillions in stimulus to date has done nothing really to stimulate the economy and the supposed growth this year has all been stimulus dollars, so the latter argument - on the stimulus being a waste of time - built a bit of street cred this week.

This all goes back to what PIMCO calls the new normal and what I have for nearly two years been calling the new reality. It actually is not new at all. It has been around all the time. We have, however, as an economy been ignoring it and trying to avoid it. But it is there and not going away. It is simply an economy where people live within their means. Now, unfortunately, due to a decade or so of folks living well beyond their means, living within means no longer makes the cut. Now, due to excessive debt, homes under water, unemployment and the like, we are compelled to live below our means so we can save and pay off debt. And it appears - despite government pushes to the contrary, that this is happening - finally!

Obviously, this on the ground austerity is not good for the markets, company profits or the government as it will surely mean a new recession with a very slow long climb out. In other words, if this happens, we may actually be on the way to a sustainable recovery. Go figure.

Disclosures: None.