Tuesday, May 31, 2011

Economic Recovery Versus Financially Fragile

The Wall Street Journal reports that "nearly half of Americans are financially fragile." It cites an NBER study using data from the TNS Global Economic Crisis survey. It asked, among other things, how easy would it be to come up with $2,000 for an unexpected expense within the next 30 days. The survey indicated that "46.5% of all respondents are living very close to the financial edge." They include those who were certainly unable to get the money and those who could do so only by taking "extreme measures."

The story notes that it is not only lower income households that are on the precipice. Financial fragility is determined by more than income levels. It also has to do with indebtedness. Nevertheless, it is further evidence that, as I wrote almost two years ago,  Keynesian economic policy is a failure. Massive fiscal and monetary expansion has propped up the stock market, wall street investment firms, and large commercial banks, but has done little else except prolong the readjustment process necessary to right the tremendous amount of malinvestment still in our economy.

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