A quick glance at the situation in the UK should confirm to anyone that the US economy will be in deep trouble if the government goes into austerity.
But beyond the analogy there, there’s a simpler way to think about it.
Just look at the latest housing data from Zillow. Households with negative equity just hit a record high of 28.5%. The real economy is still in its period of deleveraging, a process that’s been mitigated somewhat by the massive stimulus by the Fed and DC.
That process isn’t over.
It worked similarly in Japan. During the period of Japanese deleveraging, ups and downs in the Nikkei have been closely associated with stimulus. Given the similarities between ours and their economy, this is worrisome.