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While one may believe that the government sector's monetary expansion policies allow for private commerce to freely grow once again, a large portion of the funds they receive are used to absorb previous debt. When the level of debt is high enough to discourage future debt increase, quick, and steady re-growth is limited.

When a deleveraging shock arises, many economic principles come attached. One of these principles is the paradox of flexibility. The paradox of flexibility states that when workers accept lower wages due to the dire need for a job, they are actually increasing demand, which generates greater stress for a hurting economy. The salaries of the lower sector of workers are so crucial for they are most likely to spend the largest portion of their earnings, and spending is vital to the health of an economy. The paradox of toil also becomes prevalent, as the surplus of workers drives tougher competition in the workforce, and greater competition may cause for workers to accept lower wages. This downward earnings pattern corresponds with the broadest economic vice on the demand-side, the paradox of thrift. The paradox of thrift is simply the theory that the more money saved by the individual, the less money circulating and thus less revenue.
If one operates off of the premise that debt can only be reduced through long-term economic growth, then increasing revenue should be the top priority. In the situation of the United States, the major economic barrier continues to be the high level of unemployment. With an economy that thrives on consumption, increasing the employment rate is a necessity for economic growth. When enduring cyclical unemployment, in which core inflation is low and the quantity of the work force exceeds the amount of jobs available, the issue lies on the demand side. There are several strong yet complex remedies to fix the unemployment issue.

As stated earlier, those who can best increase demand are those who are most likely to spend. Therefore, those who earn the least should receive the greatest boost through government policies (tax cuts, minimum wage, welfare), as they represent the greatest amount of people and are best equipped to increase demand. The expansion of the amount of the monetary flow will generate a higher rate of inflation, yet that higher rate of inflation may cause weaker, cheaper United States goods to become more valuable overseas. China was against the United States using quantitative easing because they have a foreign trade surplus, whereas the United States has a foreign trade deficit. While not the crux of the United States economy, an increase in foreign trade may cause for positive growth. Wars have been proven to end recessions as they pay off great amounts of debt and require large military orders in brief periods of time.

While government spending may be unpopular with the American public, the 2008 financial crisis was caused by overextension solely in the private sector. Most of the financial meltdowns across Europe were a results of private debt, with exceptions such as Greece. While many view gargantuan spending as dangerous, the problems that may occur are completely dependent on the party that is creating the debt. The United States government understands and is able to fully anticipate the consequences of amassing debt, as compared to a public individual. The idea that debt is self-borrowed is ludicrous, as one's debt is always another's asset. When a financial crisis reaches the level of the current global spending, government spending is imperative as is increasing the gradual tax rate. In the case of the private sector, Deleveraging is cyclical and if decline in debtors spending drops the more deleveraging shock occurs.

Investing will be slow for United States investors for a couple more years, unless the Federal Reserve acts courageously and utilizes the quantitative easing tool. Several rounds of quantitative easing would be necessary to expedite a slow recovery with a U-shaped bottom. Short-term CD's and consumer staples are advisable in the near future. Despite warnings from the "bond vigilantes," Treasuries may still be a good purchase over the next couple of years. Until corporations feel comfortable enough to start expanding operations and infrastructure, growth will be limited.

Debt Vs. Deficits, And Deleveraging Shocks - Seeking Alpha