The US economy is spent. The current crisis, begun about five years ago, is still a severe recession despite claims otherwise. Even after squandering trillions of taxpayer dollars, there is no recovery.
This is not “your father’s recession.” It is part of a more serious, deeper secular problem. What has happened has been treated as if it were a cyclical problem, a normal business cycle. It is a cycle but it occurs within a secular downtrend. A secular problem is longer-term, generally arising as a result of structural changes in an economy. Over the last fifty plus years, the structure of the US economy has changed, usually slowly. But these changes have cumulative effects and eventually these become increasingly meaningful as to how they affect an economy.
Some of the major structural changes in the US economy have involved the increased role of government. Government growth has produced excessive tax burdens, regulations, interventions and debt loads. The result has hollowed out the productive sector of the economy. What once was a vibrant, productive and wealth-creating machine is no longer. The economy is sclerotic, sluggish and non-responsive. The stagnation and under-employment that characterizes all advanced welfare states now plagues the US economy. The most productive wealth creator the world has ever seen has been crippled.
Sometimes long-term trends can be conveyed better with charts than raw numbers. Here are a couple of charts that clearly indicate the secular downtrends in the economy:
The damage began decades ago and accelerated over time. These charts and others illustrating similar secular trends can be found at Chartist Friend.
For those who prefer numbers, USA Today describes the declining standard of living:
Median household income fell 2.3% to $49,445 last year and has dropped 7% since 2000 after adjusting for inflation, the Census Bureau said Tuesday. Income was the lowest since 1996.
The effects on family net worth have been devastating as well. According to CNNMoney:
The average American family’s net worth dropped almost 40% between 2007 and 2010, according to a triennial study released Monday by the Federal Reserve.
The stunning drop in median net worth — from $126,400 in 2007 to $77,300 in 2010 — indicates that the recession wiped away 18 years of savings and investment by families.
In terms of purchasing power, the real drop in average net worth was probably closer to 80% and the effective savings and investment wiped away was substantially more than 18 years. There is no indication that either household income or net worth has recovered since the collection of these statistics. Indeed, indications are that the negative trend continues.
Government has thrown trillions of dollars at these problems with no results. More money will not help the economy recover. It has moved the government closer to defaults on its debt and its promises. The solution proposed by government is solving a debt problem with more debt. David Stockman is correct when he says:
The idea that somehow all of that debt is irrelevant, as the Keynesians would tell us, is fundamentally wrong – and the reason why the economy can’t get up off the mat.
It is a dangerous time for investors. There are no safe havens one can run to and hide, especially those involving sovereign debt. Moodys has even downgraded Germany and put it on negative watch. There is only one sovereign left in the world that Moodys considers AAA — Finland. How much Finnish government debt is in your portfolio? Regarding sovereign debt Pater Tenenbrarum observes:
It is anyway faintly ridiculous that there are still government bonds deemed to be ‘safe havens’ when the great bulk of the issuers of said bonds are up to their eyebrows in debt and and have unfunded liabilities that consist of numbers that actually manage to strain the imagination a bit. As an example, US treasury bonds have become an irresistible magnet for money seeking safety in spite of the current administration increasing the public debt by more than 50% in just four years.
Governments everywhere are becoming more distressed and desperate as economic realities dominate the political doublespeak. The world is at a dangerous point. Much of what we thought we knew and assumed regarding governmental behavior and economics is beginning to be reassessed. Governments of the world are out of money and out of ideas. The ponzi scam that has been perpetrated for over fifty years is collapsing under its own weight. There are not enough suckers and capital left to sustain the fraud.
The common denominator in all sovereign problems is the social welfare state. The concept was foolish to begin with, but the political advantages for greedy politicians seeking power and votes were overwhelming. Unprincipled politicians everywhere saw the growth of government as a road to riches — for themselves! The social welfare state provided the vehicle. For politicians, riches proved correct. For the common man, however, the results have been tragic and will get worse.
Now we are at a point where economies are about to collapse. There is nothing that governments can do to prevent these failures short of dismantling the welfare state. That is politically and impossibility.
Politicians have reached their desperation point. They will say and do anything to retain their positions and extend the scam. These are dangerous times, regardless of what your government tells you. Most of us in their position would likely behave similarly. Honorable men, however, would come clean and present the facts to the public. Unfortunately there are few honorable men in politics. Those who enter with good intentions eventually jump on the gravy train to corruption.
Nothing that can be done will avoid the world-wide Depression that lies ahead. Further political stimulus actions can only make matters worse. But desperate, trapped men will do anything to survive, especially those without ethics.