American economy – chronicle of a death foretold?

Gabriel Garcia Marquez’s novel ‘chronicle of a death foretold’ is a fascinating story of how a man who sees his death and still keeps moving towards it. Today when I read about the status of the American economy I see an uncanny resemblance to the story.

The Fed, the Government, and most of the decision makers individually know of the direction they are headed to but still appear to be unaware of the direction they are headed to collectively. Most of them have heard and analysed the Japanese lost decade(s) and how it managed to not come out of the liquidity trap, however, they appear to either foresee that they are also headed there or they are all individually hapless.

The Democrats can’t convince the Republicans to go for a fiscal push that is big enough and soon enough, and the Republicans can’t convince and ensure the Fed from not creating more and more liquidity in the system through a series of Quantitative Easings (QEs).

Few years have already passed by in the recession and the immediate aftermath of a slow recovery. In the current scenario nobody is expecting a robust recovery anytime soon. In totality, in retrospect it might well be a complete decade of ‘laidback’ recovery if I might call it. And the structural losses of productivity, and unemployment, and competitiveness will likely never be recouped.

Japan didn’t manage to come out of crisis at that time because it didn’t have a precedent to go with. The decision makers couldn’t decide but they were totally unaware of the possible damage. America knows of it and is still treading the same path. It is true that both situations are not 100% comparable but they are not that disjunct as well. Marquez could maybe claim sometime later that the protagonist in his novel was meant to denote the American economy in the days to come.

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I recently came across and article by Krugman in NYT that confirms to my feelings above:
"Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth."