Monday, August 24, 2009

The “New” American Economic Reality
  Economics piece by Malcolm T. Hedges

As the American economy shifted from manufacturing it became more and more dependent on construction, consumption, credit and service.

As jobs left the USA, “credit” was pretty much was all that was left to drive the all important “consumption” aspect.  The businesses, government(s) and people went further and further into debt in a vain attempt to support their spending habits.

That debt was primarily in credit cards with lots of lots of borrowing against inflated property values.

Construction was propped up by needless excesses of redundant retail outlets and artificially creating of need for new homes by the government.

The retail and service industries grew larger and larger based on the seemingly endless supply of credit.

At some point in 2007 that “endless supply of credit” hit the wall and the current “recession” started.  In the summer of 2008 the pressures mounted enough to break the economy in rapid fashion.

The banking and finance went into a spiral, property prices rapidly started reverting toward reality - leaving many businesses and people with huge loans far exceeding the value of the realty used as collateral.

Credit dried up within weeks and consumption quickly started to drop.  The businesses depending on frivolous and impulse buying and spending found they couldn’t support their business model.  Many of those businesses shrank considerably, went bankrupt or went out of business.  Their activities took sales away from other business causing them to downsize.

Unemployment and under-employment started to accelerate further feeding the cycle.  The government(s) refused to accept reality went ahead blindly spending money no longer being supplied by fees and taxes.  Some government(s) raised taxes trying to hold their head above water, this exasperated the pressure on consumption and accelerated the economic downturn.

The current economy will be looked back at as “the good ol’ days” by our current population and as a “dream” by future populations.

Our economic future is pretty much cast in stone by economic, financial and political agendas, plans and reality.

Some points about this future (in no particular order):

• - The Nanny State and Welfare State will significantly deteriorate with portions collapsing or imploding.
• - Unemployment will stay in 10% to 15% range for as far as the eye can see.
• - Under-employment will be a very predominant portion of the workplace.
• - Consumption will be predominantly directed toward food and housing with little leftover for “luxuries”.
• - The service industry will thrive (with much lower wages) as fix, maintain and repair become part of the survival effort.
• - Taxes will be increased further inhibiting consumption and potential expansion in the private sector.
• - Many businesses and individuals will be crushed by the debt they took on in “better days”, they will no longer contribute significantly to the economy.
• - The “rich” will be decimated and so the tax base, hose missing tax dollars will be squeezed out on the lower and middle income people further lowering the general standard of living.
• - Inflation will be staggering in the coming decade further lowering the standard of living.
• - Construction activities will revert to renovation and conversion of homes and empty business structures.
• - As the dollar continues its endless fall in value, import costs will significantly contribute to the rising cost of living.
• - Energy costs will artificially go higher and higher prodded and pushed by political agendas.
• - Deflation will be with us for many years as outrageous prices will no longer be supported by the economic reality.

Not a pretty picture, but it pretty much covers what it is going to be.

Politicians and mush-minded “economists” will try to cover it up and put it off, but it will come to pass.

Enjoy the “the good ol’ days” while you still can, they are dwindling…

Malcolm T. Hedges

Posted by Malcolm T. Hedges on 8/24/09

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