Paul Krugman points out all the qualifications on the quarterly growth figure of 7.2 per cent recorded by the US economy. Still, with all the qualifications, it’s pretty impressive, especially as components like inventories, the trade deficit and investment are going the right way (down, down and up, respectively). One problem, noted by Krugman and Brad de Long, is that it’s hard to see such growth continuing without employment growth, and so far there’s no sign of that.

A second problem is that it’s hard to see how an economy with all levers set to maximum stimulus (near-zero interest rates, large and permanent budget deficits, depreciating currency) can avoid inflation indefinitely. You have to look pretty hard at the tea leaves to find any sign of this, and the problem is then that there’s always the danger of finding what you want. There’s pretty steady inflation in the price of services for example, but that’s what you’d expect with rapid growth in the productivity of the goods-producing sector.

Update 2/11 Angry Bear has more, particularly on the role of the Keynesian stimulus provided by tax rebates. As far as I can tell, much of this rebate was due to the child tax credit, on of the few Bush tax cuts targeted to middle-income and lower-income households.

My reading of the Japanese experience is that fiscal policy can keep an economy afloat for a while to permit restructuring in the wake of a bubble, but can’t do so indefinitely. The US is doing a better job of restructuring than Japan did, but not as good a job as is commonly claimed. I think there are still a lot of unresolved problems in the financial sector, notably with securitized mortgages, and that these problems will start to bite when interest rates rise.