The news from the European core of near zero growth shouldn’t have been so surprising.   Growth is slowing in the US and abroad. Why are some US policymakers so dead set on withdrawing stimulus?
First, to the US: Despite the somewhat surprising jump in industrial production, many indicators are highlighting the fact that the pace of economic activity is slowing.
Figure 1: GDP (2011Q2 advance release), e-forecasting monthly GDP (red line) and Macroeconomic Advisers (green line), all in billions of Ch.2005$, SAAR. Source: BEA, 2011Q2 advance release, e-forecasting.com, Macroeconomic Advisers.
Second, looking abroad, the news is not so positive, even when casting one’s eyes to East Asia. Last week, the OECD circulated the August release for leading indicators (discussed in these posts:  ). Europe is near 100, which is the long term trend. Surprisingly, so too is China.
Returning to the issue of stimulus in this economic context, for the latest primer on what happens in the short run when spending is cut and tax breaks for liquidity constrained households are reduced, see this letter from the CBO. See also IMF MD Lagarde’s views.