Why Did the ‘Stimulus’ Fail to Help the Economy? | WHAT REALLY HAPPENED

Why Did the ‘Stimulus’ Fail to Help the Economy?

An economy has a structure of production that when working well directs resources, labor, and capital toward those areas of production that reflect the desires and needs of consumers.

When governments expand money through the central bank, the rush of new money distorts the production structure and changes the relative value of assets and factors of production. In the early stages of this government-inspired boom, the malinvested assets (the ones that become more valuable as a result of the artificial boom itself) expand relative to other assets.

The credit-fed boom ultimately cannot be sustained, and it becomes painfully clear that malinvested assets (see the housing-real estate bubble) quickly lose their value relative to other assets. This is the beginning of the recession, which is a period in which the economy begins to reassert the “consumer-preferred” value of economic assets.

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