1) You appear to be saying a group has cut spending, therefore a program aimed at generally increasing demand is suboptimal, because it includes many more than the affected group. However, if the group cuts its spending, then others, perhaps all, have less income. It makes sense to target the second order effect rather than just the first order group.
2) The notion that stimulus to close the gap has driven policy is rather strange. Austerity appears to be the driving force, not traditional Keynesian stimulus.
The collapse of the housing bubble took a large amount of spending/income (my spending is your income) out of the economy. With less income, people have less money to pay down debt and less money to buy things. More spending/income would fix the problem.
Austerity has taken over fiscal policy. Where else is there to turn if not monetary policy?
Also remember that for every debt there is a creditor who holds an asset.
>>That is both logical and rational – and thus not something that the US Federal Reserve can offset with unconventional monetary easing.>>
The conclusion does not at all follow from the premise. For example, if the Fed could induce higher spending, consumers would have more income and more to money to use to pay down debt (on a macro level, spending equals income). Merely increasing inflation to target or higher would reduce the real burden of debt
>> The market’s lack of response was an important indicator that monetary easing is no longer a useful tool for increasing economic activity.>>
That the Fed's inadequate actions did not do much does not mean that monetary easing is no longer a useful tool; it only means that inadequate actions are inadequate.
>> The projected increase in the long-term fiscal deficit must be reversed by stemming the growth in transfers to middle-class retirees.>>
The main issue here is healthcare costs. Transferring those costs from the government to retirees doesn't do anything for our overall economic health (govt plus citizenry). According to the CBO, costs would increase, mostly because Medicare has more buying power and lower overhead than alternatives.
>> Fundamental tax reform must strengthen incentives, reduce distorting “tax expenditures,” and raise revenue. Finally, the relationship between government and business, now quite combative, must be improved.>>
Business profits are at all time highs. That doesn't sound very combative to me.