Given the seeming impossibility that the US political structure allows for another significant fiscal stimulus package, it is fair to assume the following: It will take an increase in private domestic spending and investment for the US economy to recover and get anything close to an actually thriving labor market. If my understanding is correct, a great deal of private capital is currently tied up in US treasuries, and accounted for as ‘savings.’ If recovery depends on an increase in private spending, the necessary private-sector shift would thus be out of investment in US sovereign debt (savings) to investment in private economic actions (spending).
1. Are there incentives in place to produce this shift?
2. Can the US treasury accommodate such a shift?
The interviews referenced in the previous post are both persuasive, and paint a strong basis for an optimistic view on US economic recovery. Namely, the optimism is due to rising housing values (McBride) and the prospects of increased private spending during the latter half of 2013 (Hatzius). One of the advantages of the massive downturn in prices we all experienced is that there is now a lot of room to rise. Indeed, I want to share the optimism, and in many ways I do, especially when you factor in the potential for lower energy costs in the near future. However, it is difficult to see a proper private re-leveraging as long as so much private capital seems to be necessarily devoted to supporting US bonds instead of private spending.