More Stimulus Really Needed?

Goldman Sachs calls for a stock market rally similar to the rally in 1982.
How is that possible? While the unemployment numbers still are rising and house prices falling.

The jobs that disappear do have a "multiplier effect" that means people without a job don’t buy cars or houses.

With an average of over 650,000 jobs disappearing in each of the first couple months alone, the total to lose their jobs this year will be about 7.8 million.
Moreover people have started saving at record levels, to pay down debt and prepare for the worst to come.

However there's a second "multiplier" on its way that could drive consumer spending down, blowing any dream of a consumer-led recovery.
People that once were credit-worthy are losing their jobs too. Those are going to lose part or all of their assets, with the high-end homes everywhere that are taking a beating as a result. As home prices slide, many high-end homeowners – like so many of their subprime counterparts – find themselves hopelessly upside down in their mortgages. Once the value of a home falls well below the size of the mortgage against it, the homeowner loses the incentive to continue making payments.

It's a depression that requires major structural changes. Recessions only need some time, less than the 18-month this recession goes on. Only a number of months are needed to work down inventories. But a depression takes a lot of time, to restructure industries and rebuild balance sheets. All the debt needs to be paid down, or inflated away. And businesses need to change their business plans into more profitable line of activity.

“Both the increase in unemployment and the slump in industrial production are worst than at any time since 1945. As for retail sales and housing starts, they're the worst in the post-war record books.”
Is read in a financial publication. It’s vital to understand that this is a major structural depression. Taking on more debt cannot cure it, because too much debt is the source of this financial crisis.

Bankruptcies, workouts, deflation, non-payment of bills and finally perhaps hyperinflation will be the curing process. Without pain no gain will eventually applicable for everyone.

None of those things happen easily or quickly. Businesses don't want to go bust. Families don't want to lose their houses. So if they get a lifeline from the feds, they grab it and hold on. And the longer they hold on, the longer it takes to make the structural changes that the economy requires.

“The length of time spent in unemployment is now longest since 1948. And consumer debt, at only 12% in 1982, is now at 18% of GDP. With that kind of debt, there is no question that the feds will implement a tight money policy." is said.

The feds have put up an amount equal to more than 150% to GDP to bailing out Wall Street: $24 trillion. No wonder Goldman is reporting record bonuses!

"We have to spend money to keep from going broke," says Joe Biden the VIP.

"Wall Street Learned Nothing," is a headline at Forbes, making the obvious point.

The feds still believe in stimulus. And Wall Street still smiles and takes it. That's why the recovery is still a long way off. Now, the feds are in charge of the money, and in charge of key industries, including automobiles, banking, insurance, and soon, healthcare. Forget innovation for the period of time as long ailing institutions are subsidized, requiring more and more stimulus packages.

“A growing group of analysts and strategists now calls for another big stimulus package.” Nevertheless the current stimulus program hasn't worked. Why not? Well, “because it was not enough, or not properly focused, say economists.” In either case, the solution is not hard to figure out. Even Nouriel Roubini nicknamed "Doctor Doom", says, "More stimulus is needed."

Readers will be able to find the right answer on above headline question.