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Under normal conditions or garden variety recessions, all the monetary, fiscal and bailout stimulus would revive a "roaring" economy. Because it failed shows Depression conditions exist. That's what bond prices are signaling, with yields approaching Japanese levels. At near zero, it hasn't worked.
Even with current government deficits around 10% of GDP, double Great Depression levels, bucks injected to stimulate bang fell flat.
A decade of credit growth excess created the current mess. No quick fix will end it. Another $5 trillion "has to be extinguished either by paying it down," walking away from it, or having it socialized.
With 10-year Treasuries around 2%, the message not only is something is very wrong but that years are needed to fix it. Even then, only if good, not counterproductive, policies are employed.
At the same time, "epic changes" are occurring in how households allocate budgets, especially regarding discretionary spending and debt at a time they're undergoing a prolonged deleveraging cycle.
Years of credit expansion were fueled by no-doc loans (requiring no documentation), low-doc ones, liar loans, NINJA ones (with no income, jobs or assets), 0% vendor financing, subprime mortgages, risky Alt-A ones, and option ARMs (adjustable rate ones) with negative amortization.
From the mid-1960s through mid-1980s, household debt to income was 70%. In 2002, it was 105%. In 2007, it hit an all-time 140% high, and it's still 120%. It shows years more deleveraging are required to return it to normal levels.
In fact, "for the first time in recorded history, the entire $70 trillion household balance sheet is in a long-term process of shrinking."
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