The Un-Dead Horse

I once had a boss who told me that there is no horse that is too dead to be beaten at least one more time. First the graph from 2006 to present:

2013

This is what a dead economy looks like, with a monetary policy that clearly helped, but reached its limits – also known as the “Zero Lower Bound.” Dead is dead; there’s nothing beyond dead. Now for the backdrop:

Personal Savings Rate – the percent change over time of the amount of money that people sock away in their banks for a Christmas Club, or rainy day. There is usually a relationship (correlation) between Consumption and the Savings rate. The Savings Rate has been going down for a long time. The last big “hoorah” was after the 2001 Recession, where (as you’ll see in a minute), people wiped out their savings accounts to buy stuff.

Consumer Price Index (all items) – this usually shows inflation. When prices go up, it’s usually a sign of inflation, which is correlated with the Fed Rate (green line). The key thing in the CPI? There hasn’t been any price fluctuation since the so-called “recovery” in 2009 – and then it was only a quick recovery from a deflationary period.

The Fed Rate – This is the interest rate change over time when the Fed is either trying to pump money into the economy (by lowering interest rates) to get people to spend more, or taking money out to get people to save more (by raising interest rates). The reason it hasn’t changed much lately? Because interest rates are stuck at ZERO – known as the “Zero Lower Bound.” It means that the Fed really can’t do any more to get people to spend. There’s no such thing as a NEGATIVE interest rate – unless you’re a big bank.

Personal Consumption Expenditures –  or just “Consumption.” It’s a measure of aggregate demand – the total demand that society has for stuff. It’s been a long-dead horse.

Now look at the graph for the previous 7 years, 1998 – 2005, and it’s a much different picture – signs of life – even during the 2001 recession!

2005

If Congress decides that there is no debt that’s too urgent to require repaying, then there will actually be a horse that is too dead to be beaten one more time – the already lifeless economy.

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