A reasoned view for high inflation is made on Zerohedge. My opinion is that hyperdeflation (if it is defined as 5% or more) does not occur. The level of inflation could be [...]
consumer
Jun 082011
John Rubino
John Rubino has an excellent post dealing with three major problems that are still unresolved in our economy. These problems, in my opinion, ensure that our economic condition will drag on for years, or collapse into another Great Depression. My guess is that the latter is the more likely outcome.
His second problem, dealing with zombie consumers, is the one most likely to trouble frantic Keynesians. As described by Mr. Rubino:
And the economy is likely to be stuck with at best subpar growth until the private sector’s deleveraging, or debt-shedding, process is complete. In Japan, that took the better part of 15 years. It was no quicker during the Great Depression. Certainly, households have made some progress lately, but this still looks to be in its early stages. While debt as a percentage of after-tax income has fallen from its peak, it remained at year end at about 120%—well above the 89% it averaged in the 1990s.
The Keynesian system has no role for debt in its simplistic model, a primary reason why no Keynesian saw the economic crisis coming. Likewise, they have an overemphasis on the the importance of consumption in economic growth and well-being,. Rubino’s quote above is true, but devastating to those of Keynesian leanings. Instead or recognizing the debt problem as the crucial factor, Keynesians believed it unimportant or at least of secondary importance to consumption. Thus, they believe the solution to economic recovery is to increase consumption. Hence governmental policies of stimulus and more easy credit and debt — more of the poison that caused the illness.
Where I disagree with Mr. Rubino is with his benchmark from the 1990s. His suggested benchmark was never reached before the 1990s. Hence, I would argue it is no benchmark in the sense of being proper, normal or sustainable. A century of US history suggests that the 1990s were wildly out of line with respect to prior levels of consumer debt. The 1990s appeared sustainable only because the credit bubble was still expanding. Debt supported life styles and spending that could not be supported by incomes. The still-growing credit bubble also enabled the unsustainable debt levels of the 1990s to be sustained.
There is no historical basis for believing that the 1990s consumer debt levels were normal. Historical relationships between consumer debt and income suggests that the 1990s represented excesses. Mr. Rubino is not optimistic regarding our future. Yet I think he is regarding the necessary reduction in debt levels. His belief that consumer debt is only 30% from sustainable levels is questionable.
Nevertheless, his website is one of my favorites as is his analysis.
Dec 172010
One of the most important lessons for a true economist to learn is that consumption is not the lead dog of economic outcomes. Indeed, Steven Horwitz argues it is not even pulling the sled:
One of the most pernicious and widespread economic fallacies is the belief that consumption is the key to a healthy economy. We hear this idea all the time in the popular press and casual conversation, particularly during economic downturns. People say things like, “Well, if folks would just start buying things again, the economy would pick up” or “If we could only get more money in the hands of consumers, we’d get out of this recession.” This belief in the power of consumption is also what has guided much of economic policy in the last couple of years, with its endless stream of stimulus packages.
To understand why consumption should not guide economic policy, read Horwitz’s excellent short piece.
Sep 132010
No need for “Green Shooters” or “Kool-Aid drinkers” to read the following. Be comfortable in your rosy world without letting facts intrude. The rest of you, however, better be prepared for what is coming. It is not going to be pretty!
In a piece, reminiscent of Groucho Marx’s line, “Who you going to believe — me or your lying eyes?,” Karl Denninger of Market Ticker asks the following question and then answers it in his own uncompromising way:
why does this Gallup Chart show levels roughly 40% below their peaks?
If you want to keep believing the BS games being run by the mainstream media, you’re entitled to.
But you have to square your beliefs with the fact that from the top, the affluent, who allegedly are the main support for this economy, are spending at levels self-reported to be about… again…. forty percent below the peak in May of 2008…
Note that these statistics have, to my knowledge, never been presented on CNBS, Bloomberg or any other “mainstream” media news site, yet they’re produced by one of the nation’s most-respected polling Continue reading »
Aug 032010
To those still foolish enough (or delusionally optimistic) to believe that our economy has turned the corner and is headed back to pre-2008 days, turn off your TVs and cancel whatever newspapers you are reading. It just ain’t happening and it isn’t about to begin!
The post below describes the situation thusly (my emboldening):
we are now witnessing are the early stages of the complete and total breakdown of the U.S. economic system. The U.S. government, state governments, local
governments, businesses and American consumers have collectively piled up debt that is equivalent to approximately 360 percent of GDP. At no point during the Great Depression (or at any other time during our history) did we ever come close to such a figure. We have piled up the biggest mountain of debt that the world has ever seen, and now that gigantic debt bubble is beginning to pop. As this house of cards comes crashing down, the economic pain is going to become almost unimaginable.
Regular readers of this blog know I am in agreement with this assessment and have been for more than a year. For those who disagree, read the following article. It is scary, so read it at ground level, away from sharp objects.
There is more financial data that could have been included that would further buttress the conclusions below. However, there is likely enough there to make you a believer if you are not already. When you finish, you might consider what steps you can take to protect yourself and your family.
I am unfamiliar with the blogsite, but everything appears to be well-documented. (I have not checked each of the links.)
40 Bizarre Statistics That Reveal The Horrifying Truth About The Collapse Of The U.S. Economy
Most Americans still appear to be operating under the delusion that the “recession” will soon pass and that things will get back to “normal” very soon. Unfortunately, that is not anywhere close to the truth. What Continue reading »
 Martenson Sees No RecoveryHere is a good collection of articles from Chris Martenson’s site. These articles show no green shoots, and in no way are consistent with what the government wants you to [...] |
 Simple Math Suggests No Imminent Recovery PossibleHere is a post from Karl Denninger. It is about Citibank and is outrageous. Apparently it is going on with other credit card issuers as well. This is the sort [...] |
Numbers versus HopeThree Government Reports Point to Fiscal Doomsday (M.W.) Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget [...] |
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The Notion of Green Shoots is Laughable!There cannot be a recovery without the consumer. The consumer cannot increase his spending from recent years without increasing his credit load. But he is overleveraged and is in the [...] |
Simple Math Suggests No Imminent Recovery Possible
Inflation or Deflation - Considered Again
Your Eyes or Government Data?
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