This is definitely a viable scenario, but it is not the scenario we get in the event of a genuine (i.e. "real") economic recovery. I am hesitant to make any assumptions, including the assumption that real U.S. recovery is impossible. Not sure about this either. Look what the debt ceiling debate wrought last August, and the angry pushback from the Mellonist faction of congress that threatened to forestall emergency liquidity even as the entire system froze. You may not get wholesale policy change, but influential policy shifts at the margin (and Wall Street's perception of them) could wind up mattering. Again not predicting, just saying there could be a sea change towards a posture of de facto fiscal tightness as a result of one or more unexpected factors, such as a stronger U.S. recovery than anticipated and / or a new cultural broom in Washington serving a distinctly hawkish base, which could then wind up being very bad news for the euro and gold. Maybe not a likelihood, but distinctly non-trivial -- still have to wonder whether gold $2,000 or gold $1,200 is the next price we see. If things start going the 2K way, we'll buy.
Bernanke is up (and I suspect out no matter who is President) in 2014. You already see individual FOMC members lining up against him.
I don't hesitate at all. The fundamental structural problems leading to the 2000 and 2007 busts have not gone away and indeed have only gotten worse; things have become so bad that the Fed is evidently unable to generate meaningful growth even with true money supply galloping at 10-20% yoy, generated by the heroic post-2008 inflationist measures. Is there any historical case of a country simply 'emerging' from many years (say 5+) of ZIRP as if by magic? Is there any historical case of extended ZIRP, period, except for Japan? Sure, policy could shift suddenly for one of the reasons indicated. Martians could also land tomorrow and extinguish all life on Earth. There's about the same volume of evidence in favor of both possibilities.
Rates were very low through the Depression and after. I don't remember the exact interest rate level, but I think when Treasuries hit 3% sometime in the late fifties or early sixties it was considered unusual to the point of being alarming. Also, my edition of Graham & Dodd, from the early sixties, pointed out that stocks were yielding less than Treasuries. They said the market had always gone down after this in the past; they were careful to emphasize in the past.
There's not much of a historical case for anything in this wholly unprecedented environment. On its way to Japanization, America takes a potential detour by way of global hegemon status / global reserve currency franchise / innovation and technology lead / positive demographics profile / various "best house in a bad neighborhood" characteristics, especially in the event of a commodity bust (which would alleviate inflationary pressures and help out consumer discretionary spending), and, just lately, potential new title as "Saudi Arabia of shale gas," with export capabilities embedded therein. Then, on top of that, you have a potential scenario where it's the rest of the world that slips into deflationary malaise, with the U.S. a relative oasis -- and $USD strengthening accordingly, even if the "recovery" limps along weak and sick... Again, I don't necessarily disagree with or completely discount the particular scenario you favor. I'm just not at all convinced the Austrian vision of Cormac McCarthy's "The Road" is some kind of dead lock, lead pipe cinch. I humbly reference the dude (aka Big Lebowski), re, those with overcertain attitudes possibly not being privy to the new shit. Yeah well, that's just, like, your opinion, man
You're right, but WWII makes comparisons with today problematic. A fact often lost on the New New Dealers is that the Great Depression continued clear through 1939 before we transitioned to a wartime command economy - easy money, big deficits, and government controls notwithstanding.
Forget the politics. You said there was no historic record of Zirp countries coming out of it. The US was near Zirp for a period spanning forty years, and the latter half of that was spent growing at a furious pace, and, during the Eisenhower Admin, enjoying a bull run unsurpassed even in the Clinton years.
I said no such thing. The Fed began a tightening cycle in 1948. This was 18 years after the onset of the Depression which at the outset saw a massive deflationary collapse with bankruptcies, etc. followed by years of grinding deleveraging, capped off by a five-year world war during which the USA was run as a command economy. The war itself obliterated global production capacity and resulted in a system of dependent trade relationships with the US at its center. I'm not sure where you get forty years; after 1948 t-bill rates were above 1% (and often much higher of course) for all but a few months in the mid-50s. So, while the case is interesting, it almost could not be more different from what we face today.
...I guess "New New Dealers" hit a nerve? In any event, thanks for replying to my question about ZIRP.