punditman says...Cogent writer Mike Whitney pulls no punches in this detailed account of what is happening with the US economy. He talks about how the Republicans are trying to sabotage the Obama stimulus plan. He talks about how Liberal economists have done a lousy job of explaining the need for more stimulus (just as the first stimulus is starting to have some positive effects). He talks about how stimulus is not a panacea but a bridge to take up the slack in demand, but it does not work without the political will to re-regulate. He talks about how inflation is the bogeyman that doesn't exist (for the time being). He talks about how the future is deflationary.
Punditman further says that deflation is bad unless you have a stable job, (especially if you have wage increases), no debt, a cash reserve and you don't want (or need) to sell your house anytime soon. As prices drop, such people will laugh all the way to the one pub left in their town, where they will sit around and drink with themselves as they ponder where all the people have gone. But how many people fit that profile? To avoid the worst case scenario, Punditman says certain things need to change starting with wages and a move away from the financialization of the economy, which has caused so much mayhem. Maybe things have to get a lot worse in the US than 18% real unemployment before people's consciousness turns? Punditman hopes for a change in consciousness.
The Deflating Economy
By MIKE WHITNEY
There should be a modest uptick in GDP in either in the 4th quarter 2009 or the 1st quarter 2010. This will mark the end of the current 20 month-long recession, but not the end of the crisis. The blip in growth doesn't mean that the troubles are over or that the economy is on the way to recovery. It simply means that Obama's $787 billion fiscal stimulus is beginning to kick in, giving a boost to consumer spending and generating short-term economic activity. Regrettably, when the stimulus runs out, the economy will slide back into negative territory. That's because the US consumer has crossed an important threshold and no longer has the ability to drive the economy through debt-fueled consumption. The data indicates a critical change in consumer behavior which portends a shift away from the current model for economic growth. It's a whole new ballgame.
From the mid-1980s to 2007, the ratio of debt-to-GDP rocketed from 165% to to over 350%; more than doubling in that same period. The build-up of personal debt follows the exact same trend-line as the aggregate profits of the financial sector; they're opposite sides of the same coin. Financial institutions increase profitability by expanding credit and inflating asset bubbles, not by allocating capital to productive enterprises. Their business model is inherently flawed. Speculative bubblemaking is Wall Street's method of shifting wealth from workers to the investor class. It never fails. It's the reason why 42 states are now facing budget shortfalls, unemployment has risen to 9.5 percent, and $45 trillion has vanished from global equity markets. Financialization has created a global crisis, crushed consumer demand, increased systemic instability, and put the economy into a nosedive.
In the last decade, the shifting of wealth from one class to another has greatly accelerated due to deregulation and the Fed's low interest rates. Stagnant wages have forced reluctant participants into the market seeking a better return on their savings, while lax lending standards and easy credit have seduced workers into increasing their personal debt-load. All of this has been done by design to ensure the profits for the few over the well-being of the many.
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Punditman further says that deflation is bad unless you have a stable job, (especially if you have wage increases), no debt, a cash reserve and you don't want (or need) to sell your house anytime soon. As prices drop, such people will laugh all the way to the one pub left in their town, where they will sit around and drink with themselves as they ponder where all the people have gone. But how many people fit that profile? To avoid the worst case scenario, Punditman says certain things need to change starting with wages and a move away from the financialization of the economy, which has caused so much mayhem. Maybe things have to get a lot worse in the US than 18% real unemployment before people's consciousness turns? Punditman hopes for a change in consciousness.
The Deflating Economy
By MIKE WHITNEY
There should be a modest uptick in GDP in either in the 4th quarter 2009 or the 1st quarter 2010. This will mark the end of the current 20 month-long recession, but not the end of the crisis. The blip in growth doesn't mean that the troubles are over or that the economy is on the way to recovery. It simply means that Obama's $787 billion fiscal stimulus is beginning to kick in, giving a boost to consumer spending and generating short-term economic activity. Regrettably, when the stimulus runs out, the economy will slide back into negative territory. That's because the US consumer has crossed an important threshold and no longer has the ability to drive the economy through debt-fueled consumption. The data indicates a critical change in consumer behavior which portends a shift away from the current model for economic growth. It's a whole new ballgame.
From the mid-1980s to 2007, the ratio of debt-to-GDP rocketed from 165% to to over 350%; more than doubling in that same period. The build-up of personal debt follows the exact same trend-line as the aggregate profits of the financial sector; they're opposite sides of the same coin. Financial institutions increase profitability by expanding credit and inflating asset bubbles, not by allocating capital to productive enterprises. Their business model is inherently flawed. Speculative bubblemaking is Wall Street's method of shifting wealth from workers to the investor class. It never fails. It's the reason why 42 states are now facing budget shortfalls, unemployment has risen to 9.5 percent, and $45 trillion has vanished from global equity markets. Financialization has created a global crisis, crushed consumer demand, increased systemic instability, and put the economy into a nosedive.
In the last decade, the shifting of wealth from one class to another has greatly accelerated due to deregulation and the Fed's low interest rates. Stagnant wages have forced reluctant participants into the market seeking a better return on their savings, while lax lending standards and easy credit have seduced workers into increasing their personal debt-load. All of this has been done by design to ensure the profits for the few over the well-being of the many.
Keep Reading...
