I read this piece and then more from the same author. I found myself getting both depressed and alarmed.
From this piece:
Which isn’t too say I was imagining that this was a temporary bump in the road to crazy-ass housing prices, but neither did I think we were still 30% away from the bottom and that we wouldn’t be anywhere in shouting distance of where we were for another century, as this author seems to believe.
But he makes a whole lot of sense.
So…how doomed are we?
We’ll be fine. We didn’t need that inflated economy, now things can return to normal. Well, so to speak.
The key word in his analysis is “real” as in “real dollar terms.”
If you believe that governments around the world can create more fiat money that outpaces the actual underlying real wealth it represents, then he is correct.
If you believe that the underlying real wealth (real factories, real breakthroughs in medical cures, real oil & gas reserves newly found, real technology advances in computers and robotics, etc) will outpace money creation, then he is wrong.
Japan has been ‘recovering’ from its asset bubble for two decades. That’s two decades of recession or low growth, with no end in sight.
Even if you believe in the stimulus (which I don’t), it will only have a positive effect for at most 2 or 3 years. Then the cost of it has to be paid back. Even Obama’s economists admit this. The idea behind the stimulus was to prevent a crash, at the expense of sacrificing future growth. Basically to borrow wealth from the future to prop up the living standards of today.
Here’s the problem: Let’s say the economy starts to pick up steam again. If that happens, and money starts to flow, we’re likely to see inflation, because the government has been pumping up the money supply. So to get inflation under control the Fed will have to raise interest rates. This will choke the recovery, and at the same time increase the debt-servicing costs, putting more pressure on the federal budget. So there will be pressure on the government to not raise interest rates. If they don’t, then inflation will destroy savings and distort prices and make the economy less efficient, which again will choke off growth.
And at some point, the debt has to be paid. Obama is planning on running it up to close to 100% of GDP. Paying that debt off will require either severe budget cuts (good luck with that), or an increase in taxes. Which again will choke off growth.
So the U.S. is likely heading into a period of low growth, higher taxes, and higher interest rates. Or, it’s headed into a period of low growth and high inflation (stagflation). Or, the government will keep the party going for a little while longer by borrowing even more money, holding interest rates down, in which case we could be entering a period of typical post-recession recovery, with fairly high growth, followed by yet another crash, except the next crash will be worse and the government will already be in huge debt and not have the tools to deal with it.
Then, in about 10 years, the budget starts to get blown apart by the retirement of the baby boomers. Social Security and Medicare costs skyrocket, and tens of millions of people leave the productive workforce where they were paying taxes and contributing to growth, and enter the ranks of the retired who are a net drain on the economy. That little disaster peaks around 2030.
But of course, this being economics and the future, maybe something else will happen. Perhaps new inventions or the rapid increase in technological innovation will counteract all of this and we’ll become so much more productive that all the current bills look puny, and the future will be rosy.
But that’s wishful thinking. The evidence we have today points to one of the previous scenarios above.
Christ Jesus, does THAT mean the George W. Bush years were “The Best of Times?”
::Runs away crying::
Unfortunately, I expect this will happen somewhere, possibly right here in the US. It’s an open question as to whether Obama and the Congressional Democrats have the balls to face the fact they cannot pay the bills they’ve just put on the charge card. My guess is… not, at least in the short term. Politicians of all stripes have a nasty habit of not seeing what they don’t want to see, and leaving budget messes for others to clean up.
In any case, it’s obvious that they can in fact do this. It’s simply a matter of whether they will do it.
A year or two ago someone started an IMHO thread about when you’ll retire, and what you think you’ll do once you have. Baby Boomers offered cheerful plans, but those of us in Gen X and some of the older Millennials mostly said we don’t expect that we’ll be able to afford to retire, and we’ll probably work until the day we die. Of course, we were accused of cynicism. But are Boomers being overly optimistic? From here it looks like a lot of them aren’t going to be able to afford to retire in their 60s either.
I’m curious about how it will really work out retirement-wise, because when I was in college 10 years ago we were told that in 10 years the country would
be facing a critical teaching shortage due to 40% of teachers being of retirement age all at once. They don’t seem to have retired in the promised droves, and that’s got to be financially motivated.
In the U.S. and Canada, the average teacher age is somewhere around 46-48. That’s higher than it’s ever been, but it’s still not horrible. We’re much better off than Europe in this regard. North America’s population is significantly younger than Europe’s, primarily because we have a higher natural birthrate. The problem of the large bubble of baby boomers all retiring together is still there, but there will be more workers to support them.
There are roughly 4.5 workers per current retiree in the U.S. today. By 2030, that number is projected to drop to 2.67. Those 2.67 people not only have to pay to support another person, but they also have to either pay back all the debt we racked up, or pay the interest on it. In contrast, the burden of paying to support one person is spread out over almost five people, plus we’re borrowing money hand over fist to help pay the bills. It doesn’t take a rocket scientist to look at those ratios and realize we’re royally screwing over our kids by borrowing so much money now.
But Europe is in far worse shape. For example, in 2030 Germany will only have about 1.9 workers per retiree. That’s a hell of a burden on the working class.
No, the Bill Clinton years were the Best of Times, the Good Old Days. I was low on debt, well-paid, my tax load was manageable, when my tech stocks bombed I didn’t lose half as much as I did this time proportionally, and I could walk onto an airplane without getting undressed. 
What we have sliced is purchasing power. We sent middle class and technical jobs to offshore locales . We gutted our industrial base so a few could make billions. They are not coming back anytime soon. Our manufacturing base is making some Chinese people rich. When the auto workers ,who were the vestiges of the middle class were getting wages and benefits slashed, small business were hearing their death knell. NAFTA,CAFTA and other offshoring did what they were supposed to do. They cut wages across the globe ,making some people extremely rich. International business has no loyalty for America. They just make short term profits as big as possible. There is no turning back. We are a poorer people now. Jobs are scarcer and wages will drop. The workers of tomorrow will not be able to afford mortgages, new cars, vacations and eating out. The bankers,financial pros and industrialists have changed the country for all time. They gobbled up billions and it is theirs now. Then we gave them a free pass to eat our treasury. How can we recover? We can’t. The money is gone.
How do you think population growth fueled by streamlining immigration policy and increasing the number of allowed immigrants would affect this?
Would your proposed streamlining include some means of screening out immigrant families who are likely to consume more than they produce?
You people are crazy. Our country’s capability to build stuff, do stuff, and do stuff for other countries so they give us stuff, i.e. its GDP, will continue to grow. What the hell else is gonna happen to it? The only true thing that’s been said is that the GDP is being channeled into fewer hands. Income inequality is up and may take a long time to come down. But overall, the economy isn’t going away anywhere!
GDP will continue to grow, same as it always has, because we (whether it’s Americans, or the Taiwanese, or whoever) continue to invent machines that make stuff for us. These machines keep improving, and the stuff they produce keeps getting more sophisticated. It is inevitability. Nothing will fucking happen to that. It will only get faster.
Moreover, the economy is improving too, same as the machines it produces. The act of finding suppliers, the act of being found by customers, is being made ever easier. Same as the machines get better, it gets easier to organize the people and materials to utilize them, and easier to distribute their fruits.
Behold. It is capitalism. And nothing will stop it. Not now.
To address the article more directly: it is retarded. It compares flowers to perpetual ownership of pieces of the Earth. The price of the Earth will only continue to grow as people become better able to acquire the money to buy it. And no matter its value, the Earth’s price has a merely tangential influence on its inhabitants making stuff for eachother.
The problem has been the banks, the tabulators of who owes stuff to whom, and the facilitators of the critical, “I know I’ve made a lot of stuff today at the factory, but I don’t want it at the moment. Let someone else use the stuff, and return it to me in a few years.” Trouble in there put a big damper on the stuff-making and stuff-exchanging, but it is temporary. One expects. At the least, it is correctable and will be smoothed out with time, as well.
What’s going to happen to it? It will go to the Chinese instead of USA citizens!
Yes, GDP will grow. Yes, there will continue to be American ingenuity. Yes, yes yes. But China now has about 1 trillion in “claims” (debt) against that future GDP. Americans (the next generations) will not get to fully enjoy the fruits of all that GDP growth like the WW2 generation did. Unless USA would like to default on the debt and say “Dear China, screw your treasury holdings.” Don’t forget about Japan and all the other countries that hold billions in USA debt.
Can GDP and innovation outpace the deficit and debt (and interest payments on that debt) that is issued by the USA government? No it can’t. It can’t because it’s infinitely easier to issue a debt sale than it is to invent a cure for cancer or find a gigantic resevoir of oil underneath Louisiana.
I like it that some still believe that myth. The production, industry, the innovation and the salaries were given away for a few to get rich. The Chinese and Indians did not invent anything to take over our manufacturing. The geniuses who run industry moved there ,lock, stock and intellectual property. The bosses who moved there made a ton of short term profits. They did not care about America at all. All the manufacturing , all the inventing and all the future products are going to be made abroad. They screwed us and our politicians passed laws to make it happen.
Why would it ever come back here? They are running the steel plants. They are improving the production. They are coming up with new products to make it all easier. The autos of today and tomorrow will be built abroad. The products in your stores are made by foreigners. Soon. we will not be able to buy them.
Actually, it is pretty screwy what China does with our treasuries. It is pretty screwy that China can force us to borrow stuff from it. China has found a real good twist on the ol’ Keynesian, “the government should spend money to generate growth” trick. Normally, the government has to spend it, knowing it will never get the money back. Instead, the Chinese government takes Chinese money and gives it to Americans in a way that they cannot refuse it. The Americans, due to the miracle of exchange rates, are then left having to spend that Chinese money back on Chinese citizens.
The Chinese government has just used Keynesian policies to grow its economy (like we are trying to do with the Bailout), but when it’s done it turns out that other countries owe it money. It’s fucking brilliant.
So yes, the system of stuff borrowing has some pretty fundamental flaws to it. Ones it seems we are not willing to rectify (because the solutions are so totally out of line with what we are used to, and with what the orchestrators of “change” have in their interests). But… at least… our robots and computers keep getting better.
Why would they come back here? They wouldn’t. It’s too expensive to manufacture in the United States with all the unions, benefits and bloated salaries all 'mericans feel they are entitled to. Returning to a manufacturing economy is about as likely as returning to a pre-industrial agrarian economy.
No one “cares about America”. There are billions of people living on next to nothing who would be thrilled to work in a “sweatshop” while American community college grads clamor for huge salaries so they can afford to have weekend bar-b-ques in their oversized houses.
Like it or not, technology is making the world into a global economy and Americans are becoming woefully inadequate to compete in it.
Yeah, damn those greedy, stupid American workers for not wanting to live like third world peasants! Who do they think they are, demanding a pension to live on when they’re no longer able to work and health care when they’re critically ill? I don’t know where they get the incredible gall to expect that they shouldn’t have to live with ten other people in a one-bedroom apartment or have meat on their plates more than once a week.
Yeah, you got their number all right. It’s those working people who are wrecking our economy. To hell with those rednecks!