The $500 billion trade deficit -- mostly on oil and with China and Japan -- drags on demand for U.S. goods and services about three times more than recent tax increases. Drilling bans and restrictions off the Atlantic, Pacific and Gulf Coasts and in Alaska, and the reluctance of the Obama Administration to bring meaningful pressure on China and Japan to fairly value their currencies, make significant relief unlikely. Now the Energy Department is considering boosting liquefied natural gas exports, when keeping the new bounty from shale deposits at home to boost manufacturing would increase GDP and employment much more. The Federal Reserve -- by buying massive amounts of Treasury and mortgage backed securities -- has kept the big banks profitable and boosted the housing market. But rock bottom interest rates allow banks to "earn" profits and pay big bonuses with virtually free money.
This puts off the necessary and inevitable restructuring of U.S. banking. Investment houses must be separated from commercial banks to reduce systemic risks, and large depositories like Bank of America ( BAC) have too many layers of bureaucracy that regional banks don't have. Those make loans scarcer, more expensive and cumbersome to obtain than they need to be. The housing market continues to recover, but new home construction is less than 3% of GDP and cannot power a recovery. Moreover, easy Fed policies are creating new bubbles in big city markets -- rock bottom interest rates are elevating prices above what incomes will sustain when the Fed takes its foot off the accelerator. Asset bubbles are appearing in other markets such as stock, corporate debt and agricultural land. In the near term, the Fed can keep the economy growing at a modest pace, but without better regulatory, health care, trade, and energy policies, Americans face slow growth, higher taxes and stagnant or falling wages. Follow @pmorici1This article was written by an independent contributor, separate from TheStreet's regular news coverage.