Photo: Scotty Barber, Reuters
You can ignore the Euro line for now.
What really matters is the divergence between the gold line, the US, and the red line, the UK.
Both economies saw similar implosions, and both started snapping back around the same time.
The trajectory of the snapback was the same up until early-mid 2010, at which point the UK economy started flatlining.
What happened then? David Cameron rode into power and began to push an agenda of austerity.
Meanwhile, Barack Obama, has managed to keep various stimuli going despite the unpopularity of spending, the anti-spending mandate of the GOP opposition, which came to power in November.
The chart has obviously had some resonance. It’s been linked too from all all over. Ben Smith at Buzzfeed called it the most “powerful” chart argument he’d seen in favour of stimulus over austerity.
One really nice thing about it is that it helps isolate out the fiscal and the monetary, since the Fed and the ECB have conducted themselves similarly on the QE front.
It’s true that the economies aren’t exactly the same, and some will object by saying that Cameron’s austerity isn’t all it’s cracked up to be. But the bottom line is that if you come to power on an austerity mandate, and your economic growth suddenly grinds to a halt, to the point where you’re performing worse than the Eurozone, that’s a serious problem.
And it also is ominous for our fiscal situation in terms of the “Fiscal Cliff” we’re due to fall off of next year, when the Bush Tax cuts expire, and the mandatory spending cuts kick in.
One thing Bernanke said at his Wednesday press conference is that he doesn’t have the tools to counteract that kind of dropoff in demand. And if the UK is anything to go buy, “expansionary austerity” will prove to be a myth.