Posted on 02/28/2010 8:58:26 PM PST by TigerLikesRooster
Too Much Debt, Too Few Jobs
By Don Bauder | Published Wednesday, Feb. 24, 2010
If a railbird tout gives you a tip on a horse, and you learn that three of the nag’s legs are so fragile they will likely break during the race, you will keep your money in your wallet. Similarly, if you’re told that some relay team is a sure thing, but you find out that three of the four runners weigh 375 pounds each, you won’t count on those tracksters to win a gold medal.
It’s the same way with the American economy. At least once a week, you hear some Wall Streeter exulting that manufacturing is showing signs of recovery. What he doesn’t tell you is that manufacturing is less than 10 percent of the economy. He won’t mention that sickly consumer-related activity is 75 percent.
The TV talking heads will rejoice that profits are doing extremely well and that productivity, or output per worker hour, is setting records. But the commentators won’t give the reason: companies are still laying off workers and not hiring back ones who were earlier laid off.
The unemployment rate in both the U.S. and San Diego hovers around 10 percent, give or take a hair on each side. But consumer spending is 70 percent of the economy, nationally and locally, and housing is another 5 percent. That’s three very wobbly legs under the stool. As long as unemployment remains so high, how can consumer spending, which dominates the economy, pick up?
(Excerpt) Read more at sandiegoreader.com ...
P!
It can’t. The day after the election lots of small and medium sized businesses started firing people. You have an islamo-marxist in charge who looks like Mugabe 2.
People with money and people with an IQ above 70 are not spending money because they have ZERO ZERO ZERO confidence in this govt.
They fear the marxist, they fear their taxes going up, they fear the economy and country imploding.
Uh, tax cuts or Zer0 bailouts of individuals.
I’m afraid we’ll have to crash before we ever start to really recover.
I will say that Schneider is picking back up but it is not to the deep level that eventually drives consumer demand. That reality was hit hard this time. It will take years to get a strong consumer base going again.
Suppose Bummer quit the presidency, for whatever reason not relevant here. Now it’s Joe Biden. Would that help with the sense that there is a loose cannon in the White House? Aren’t there still loose cannons in Congress?
I would take Biden in a heartbeat. At least he is an American.
Republicans sweep Congress and Obama removed - you might have an economy again.
People do not talk BC, race, muslim and all the other baggage but it is there. Zero confidence - total fear.
There will be NO economic recovery with him and a Dem Congress. Period end of story - ain’t gonna happen.
As long as he is there and a Dem Congress - there will be no recovery - period.
Yes, he may be an idiot but I think he knows his limits.
The Muslim Marxist is delusional and not very intelligent contrary to the lefty media spin.
Someone in Biden’s family at some time did something good for America. Some Biden put on the uniform.
Obama, Soros, Rahm - not one of them were born in America.
We might get the House back, but not the Senate. And I still think Americans will reelect Obamao because of race guilt. After all, its uncool to vote against a black man, don’t you know!
The consumer was fooled by an unsustainable bubble in housing prices and took on way too much debt. HELOCs were foolishly used to finance purchases of autos, electronics, and lavish vacations. Securitization of the debt let the foolish lenders offload these toxic assets onto foolish investors. When the housing market collapsed, it sent a ripple effect through the economy.
The government - led by both parties over the years - has fudged the numbers on GDP, CPI, and unemployment to hide the severity of the problem. Denninger has noted that state sales tax receipts are the most reliable indicator of the health of the economy. The Rockefeller Institute just released the results for the last quarter and they still suck. The consumer still needs to pay down a boatload of debt before they can spend again. Most of the "growth" during the last decade (or two) was really "pulled forward" demand financed with debt. This is not equivalent to growth produced by increased productions.
I suspect that it will take at least a decade for the economy to recover, if it ever does. I fear a "perfect storm" caused by the convergence of profligate government spending and a lower wage base (caused by off-shoring more and more good jobs) is likely to cause an unprecedented crash before a recovery. Both the Bush and Obama administrations as well as most state governments have spending growth at rates far greater than the growth of wages. As Denninger pointed out in today's blog entry, these are two coupled exponential functions that rapidly diverge. The math doesn't lie. The course is unsustainable. The question is not if there will be a crash but when.
Thanks for your analysis. Makes sense.
Well yes, consumer spending is a measure of the speed of money, but, like your point, debt driven consumer spending only works in the near term.
Second, the other point is that goobermint spending (the size of goobermint) is way out of line with the ability of this countries actual production.
Third, our 'leaders' need to admit that all the recent goobermint expansion the last 15 years was based upon a conspired artificially created credit/debt bubble.
The US simply needs to start producing more of what it consumes in order to strengthen it economy and that will not happen until goobermint reduces its spending, corporate taxes and bureaucratic red tape.
A "consumer economy" is a bllsht economy
Where does "the consumer" make his money to consume with?
Ultimately these consumers should be earning that money via producing
But instead he has gotten his spending money via housing and stock market bubbles and big pension checks
Even if you brought back more factories to the US we are still screwed because much fewer people are needed to work in them these days. Producing a lot more of our oil and gas instead of importing would employ plenty of Americans. Get rid of illegal aliens would tighten up the labor markets. Put up tariffs too
That's not an economy.
That's a scam.
The question (the only question) is, what will happen to the parasite class, swollen by decades of bipartisan public policy, when the host dies?
It isn't getting any better. I live in a midwestern city of ~200K. We have one of the best bus systems in the US for a city of our size. Local politicians still want to spend 100's of million dollars of federal money on a light rail system. The idea was killed off during the Bush administration. Now with stimulus money sloshing around, they are back at it again. Since it has been several years, they are starting the process over again. That means new junkets to Europe and Japan on the tax payers dime.
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