Economy With Weakened Consumption Still Threatens Collapse

Since the development of the financial collapse of 2008, the government has concentrated on rebuilding the financial system, and with good reason. Businesses rapidly failed because they could not borrow funds to finance the costs of doing business. Many banks and especially small businesses failed, others hunkered down, let people go and were this able to divert thinly spread operating capital from multiple products to those that were most profitable. This game many the edge they needed to build capital reserves and stay I’m business. It had suddenly become hard, if not impossible, to borrow large sums of money for operating capital from either small or large banks. Federal government programs and parallel actions by the Federal Reserve Bank were able to improve the money supply. The actions of the Congress were however so tepid and austere in nature as to substantially weaken the recovery. Nevertheless, the combined actions of the Congress and the Federal Reserve Bank led to a slow, partial recovery of the economy which did not really begin to take hold until 2010-11.

Subsequently, the Federal Reserve Bank expanded efforts through the quantitative easing program in which it would buy very month billions of dollars in government bonds. This led to a reduction of interest offered on bonds and as a result, which lowered also the cost for the government to borrow money to finance the debt and also the an increase in the value of securities and stocks as well as commodities. It also led to small but steady increases in employment and thus to reduction in unemployment. Overall though, the recovery continued at only a modest level as new jobs were often at modest to low salary levels. In addition, many people were forced to take several part time jobs to make ends meet, earning enough to be no longer considered unemployed but still not making enough to buy many of the necessities and certainly only few if any luxury items. Indeed, many common items had increased in price as a result of quantitative easing — producing a modest inflation on basic necessities.

Modest inflation was part of the plan since government unwillingness to create a stimulus sufficient to begin to push the economy back from the brink and well as the perhaps excessive caution from the banks in making capital loans, pushed the economy toward deflation. The cost of goods began to decline as people had less money for purchases. Merchants made efforts to increase sales. They reduced prices on selected items, created attractive terms such as one year, twelve easy payments, same as cash. Many of these deals still linger and did have a useful effect in increasing consumption. Overall, quantitative easing countered the deflation we saw early on, but overall unemployment has declined considerably and the economy remains quite fragile as the Federal Reserve now begins to decline the levels of the quantitative easing program. The problem is that while many are back to work, their purchasing power has declined significantly and as a result the recovery remains tepid and the recovery could still decline and the economy yet collapse from a threat that could yet arise.


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