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Where will the recovery come from?

Scott Jagow Jun 11, 2009

Here’s what the Treasury said today: “Timely policy adjustments, not stepped-up U.S. consumer spending, are the key to pulling the world out of its current economic crisis.” Let’s think about that for a second.

Yes, consumer spending is 2/3rds of GDP, and it’s unlikely that consumers will go on even a tepid spending spree anytime soon. So, that part of the statement is probably true.

Plus, gas prices are climbing, and that might force people to cut back on other spending. Mortgage rates are climbing, and that could deter some spending in the housing market.

But does “timely policy adjustments” sound like a reliable economic strategy? And what does that even mean? The Treasury official’s only elaboration was: “To address this, of course, each major economy, including the United States, will need to take some policy adjustments.”

As for the US, policy adjustments certainly can’t mean the Fed’s interest rate. It’s already at zero.

But the important question is: Where does a recovery come from?

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