Checking out this CNN Money report on the GDP figure tomorrow it says:

NEW YORK (CNNMoney) — The recovery is slow because you’re not spending enough money.
At least, that’s what economists say.
On Friday, the government will release its second-quarter report on gross domestic product and economists surveyed by CNNMoney are predicting a 1.4% annual rate of growth. That would be down significantly from 1.9% growth in the first three months of the year.

The biggest drag isn’t likely to come from Europe’s debt crisis or China’s slowdown, but from weak consumer spending at home. All this collective frugality may be too much of a good thing. Less consumer spending means businesses have little incentive to hire, and overall growth stagnates as a result…

The economy is facing a chicken-or-egg conundrum. If job growth doesn’t pick up, consumer spending is unlikely to grow substantially any time soon. On the other hand, if consumers don’t go out and buy more, companies don’t have much incentive to hire more workers. Unless something else snaps the U.S. economy out of this cycle, economic growth could stay around or below 2% for “as far as the eye can see,” Bullard said.

One hope lies in the housing sector, which seems to have recently bottomed out and may start recovering.If home sales pick up, that could lead to a pick-up in construction jobs, and if home prices start rising steadily, that could make consumers feel more confident about their own financial situations.

The author probably has never heard of the Sumner critique. It doesn’t matter if housing picks up as long as we have the explicit 2% inflation target and not enough NGDP growth; it’s like bailing water out of one side of a bathtub into the other side. It won’t help. It will just displace productivity from one side of the economy to the other side.

It would nice if these people “got it.” I would much rather see a tag line that says “The recovery is slow because we don’t have enough income, and we need more NGDP; Mr. Bernanke, that is your queue, sir.”

[Update]

Perhaps I should have started with this one from CNN Money because it’s the same “out there” stuff: ” The Risks of more Federal Reserve Action” by Annalyn Censky. It says:

Risk #1: Runaway inflation
From vocal Fed critics, the most commonly cited danger is that the central bank’s policies will eventually lead to higher inflation down the road.
Currently, much of the extra money the Fed has pushed into banks is just sitting there, not making it out to consumers and business. But if the economy starts recovering at a faster pace, that money could pour into the economy very quickly, igniting rapid inflation.

Risk #2: Skyrocketing interest rates
Another frequent concern is that the central bank will be too late to tighten the reins once the economy starts to pick up more momentum.
If the Fed finds itself chasing after rapidly rising prices, it will have to start raising the federal funds rate quickly. The central bank’s key tool for influencing the economy, the federal funds rate is the interest rate banks charge one another for overnight loans. It influences everything from mortgage rates and auto loans, to the interest rate on savings accounts.

Risk #3: Bond market mayhem
The Fed itself has admitted that buying Treasuries comes with some dangers. The central bank already has a large presence in the bond market, accounting for $1.7 trillion in Treasuries. (In comparison, China owns about $1.2 trillion in Treasuries, and Japan owns about $1.1 trillion.)
As the Fed buys more bonds, economists are unsure of how the central bank will ever be able to wind down those purchases. It’s possible the uncertainty could scare off other large bond buyers, like China and Japan, said Jeffrey Bergstrand, finance professor at the University of Notre Dame and a former Federal Reserve economist.
Should interest rates rise rapidly later, those foreign buyers stand much too lose on their investments.

Risk #4: Having no effect
Some argue that with rates already hovering near zero, any action by the Fed will have little to no effect on the economy.
“The biggest risk is, it doesn’t work, and the market concludes the Fed is losing its impact.” said Eric Lascelles, chief economist for RBC Global Asset Management.

The author hasn’t a clue that we’ve entered the realm of Japanonomics. I’ll refer you to Scott Sumner’s post from Tuesday: “Fed Fail: The implosion of a policy regime” for an explanation.

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