A lot of old shibboleths have bit the dust in recent years. Deficits were supposed to destroy the economy by crowding out investment and ushering in inflation. They have not done so. Inflation remains extremely subdued and if there is a risk it lies on the deflationary side of the spectrum. Quantitative easing was supposed to cause because it involved the central bank purchasing debt and thereby monetizing it, run away inflation and rising interest rates.I knew from my own published research that this was very unlikely. Just as I expected interest rates remain close to zero and inflation has largely vanished.  Austerity was supposed to result in rising growth and employment rates. It has not. Countries that have followed austerity are mired in high unemployment and substantial debt. Right wing movements and parties have instead benefited and now threaten the civic stability of these countries.

Once again this week the stock markets, particularly in Asia have over-reacted to the trial balloon that Ben Bernanke floated about QE coming to an end eventually by launching a sell off in securities. Because Wall street behaved more calmly and essentially ignored the hysteria the optimists continued to dominate the North American markets. But as the healing of the North America economy continues the environment grows more conducive to a self sustaining growth cycle. There are some obvious problems to be sure. The circular flow of finances into Consumption, Investment and government expenditures is being interrupted by draining outflows into quasi hoards of accumulated funds in banking and corporate coffers. This problem needs to be addressed. Offshore holdings that take much longer to  be reinvested in the domestic economy and contribute to job creation and government tax revenues appear to be somewhat larger than before. But the fact remains as long as animal spirits revive and consumers wish to spend the circular flow will continue restoring prosperity and employment. The last few years have shown us that irrational behaviour abounds but the capacity for appropriate policy response in a crisis remains alive and that there is much rethinking needed to be done. The system still has certain systemic built in stabilizers of appropriate critical mass despite all the misguided efforts to destroy them over the past thirty years. If appropriate stimulative fiscal policy were added to the mix overall growth and employment would be considerably strengthened.