Here is an excerpt from Dan W’s “Ashes Ashes” well-reasoned update and forecast for the US economy: http://ashizashiz.blogspot.com/2009/03/no-matter-what-else-happens.html
U.S. GDP over the past several years has not only been driven by outrageous levels of consumer spending, but the majority of that spending has been pure debt, leverage, no capital foundation. Also:
- The gap between real wages and the cost of consumer goods continues to widen. In other words, it is becoming increasingly difficult for a family of four to make ends meet—just the basics!— on the wages of two median-income wage earners.
- The Import-Export economy has collapsed. Not only can people not afford to purchase the luxury items that just recently comprised much of their spending, but such items are becoming increasingly scarce as overseas production grinds to a near halt.
- An extraordinarily FEW individuals are still willing to seek financing for such things as new cars, new homes, etc. AND, what we’re beginning to see is that many who are able to secure such financing are defaulting on their loans without making so much as one payment in service of their loan.
We have simply run-up, as a society, far too much debt. We have run-up so much debt in fact, that even under the best circumstances and with the best policies in place we would need to experience a deep recession in order to bring spending and production and debt back into line. But the circumstances are grim, and the monetary and fiscal policies of our government are insane, and as such we are lurching our way toward the deepest and quite possibly the longest economic DEPRESSION in the brief history of our troubled nation. Such an end has become entirely unavoidable:
- The FED’s efforts to stimulate growth and ease possible deflation through the strategy of Quantitative Easing will only serve to (1) artificially prop up certain sectors of the economy for a finite amount of time, and to (2) bring us closer to conflict with the rest of the world over our policy of currency devaluation and our status as a nation whose debt-service cannot be counted upon.
- Consumer spending is going to continue to collapse. Despite federal reports to the contrary, as more and more people lose their jobs and as more and more people try desperately to pay down their debt, consumer spending on the types of goods & services that once spurred “growth” will plummet. As such, GDP will continue to contract at an extraordinary rate.
- There is a feeling out there in the world of the ordinary person that debt has become a very dirty word. I hear it all of the time. People are saying, “never again”. Never again will I run-up my credit card debt or buy something on financing. People are coming to see the system of ‘money-as-debt’ as fraudulent and unctuous, and the Obama obsession with getting credit flowing again is falling upon deaf ears and unwilling minds.
- The velocity of money—real money—is going to slow to a virtual standstill over the next few years. ANY money that people can hold, they will. ANY money that people are able to scrounge and save will NOT circulate. Just wait until this spring and summer—and the next—when the barter economy robs the federal government of tens of billions of dollars in tax revenues and when banks see a precipitous drop in deposits and reserves.
- There remains TRILLIONS upon TRILLIONS of dollars of debt in the system that need to be cleared. And not only consumer debt, but corporate and sovereign debt as well. And until that debt is destroyed, any manner of GDP growth will remain impossible.
- Any new regulation of trading in derivatives, etc., should it succeed, would suppress the market and as such would lead to further retrenchment and contraction. Don’t get me wrong here: I support the idea of honest regulation. I am simply recognizing that mandatory reserve limits and elimination of “naked” trading would further contract GDP because less “profits” would mean less spending of said profits (and converting the supposed capital into investments). And thus the collateralization of said debt through spending is reflected in GDP. And yes I am cognizant of the fact that much of the profligacy in the derivatives market is nothing more than leverage, but this DEBT spending, regardless of its future harm to the overall economy, is still calculated as part of the overall picture of GDP because the debt is used to purchase goods and services.
The days of 4%, 3%, even 2% GDP growth are over. We’re looking at several years of falling GDP, several years of negative growth.