America's Economy: A Closer Look...

The following is a synopsis of the evolving dynamics of America's economy just after the financial crisis, looking beyond the aggregates to the micro impact/adjustments accompanying the financial crisis. In America, the massive loss of jobs was accompanied by a wipeout and shutdown of financial and physical capital, in some instances that of the latter, for example the auto industry, being temporary.

This means that a fair amount of economic restructuring and rebuilding had to be accomplished, now in an economically unfriendly global environment. The result being that the kind of investment expected and looked forward to, did not materialize.

Now into the second five years after the crisis, much of labor has recovered, implying some recovery in America's productive base, with the level of credit expansion still trammeled by global prospects, and now more recently with the move to check unwanted inflation, counter-productive strengthening of America's exchange rate resulting from speculation on the movement in interest rates going forward.

Since companies recognize the potential for the global market to be curtailed by a strengthening currency, they, and banks, have little appetite for low-yielding large investments that could very well go bust in three to five years.Hence the incremental credit growth.

Central banks faced with a situation of returning to 'normal' interest rate levels from below, will find themselves challenged by liberalized capital markets.

This is the basic problem going forward.

One solution rests in increasing productivity, and here familiarity with the limits to productivity, in respect of both capital and labor, would allow for more incisive pronouncements about the possible paths to growth.

http://www.economist.com/blogs/buttonwood/2016/05/monetary-policy