Mort Zuckerman touches the right bases in his plaint on the state of the U. S. economy namely:
- The recovery has been and remains lackluster.
- There will be another recession eventually, it will be sooner rather than later, and we aren’t well-equipped to deal with it.
- The White House does not show any particular sense of urgency or even interest in the problem.
- Those seeking the presidency from both parties don’t have much in the way of answers, either.
To which I’d add:
- Even if you rely on the late recession having been a “balance sheet recession” it doesn’t make things any brighter. We haven’t deleveraged as much as we needed to in order to recover, neither party has proposed any policies that would have changed that, the policies they have proposed assumed it was an ordinary cyclic recession, and just because it was a balance sheet recession doesn’t preclude a cyclic recession being right around the corner.
- Just as the Chinese require about a 7% growth rater to avoid social unrest, we assume about 4% growth. Failing to realize that is producing all sorts of problems, especially for retirees—slow growth is one of the reasons for the pension panic and the incipient collapse of state and local governments, e.g. Chicago and Illinois.
- Mr. Zuckerman hasn’t proposed much in the way of solutions, either.
A persistent topic here at The Glittering Eye has been the structural changes we need to make. I’ve proposed dozens of them over the years. In the case of each and every one somebody’s ox will be gored which is why we are struggling like a fish on a gaff to avoid making them.
There could be two types of recessions occurring at the same time.
The balance sheets that need to be deleveraged are the Fed, the Financial sector, and the private (shadow) banking portion of the Financial sector. In addition, depending upon how intertwined the US Financial sector (private & public) is with the rest of the world is a factor also.
With the worldwide QEn’s, there is no telling how much money has been leveraged off of the initial base creation. Into a crisis of too much debt, the central banks around the world have attempted to solve the problem by creating more debt.
Greece is only one minor example. Each time Greece cannot pay back the previous loans, the lenders put together another larger loan package for them. Greece is them somehow expected to be able to make the payments on a larger loan when they could not make the payments on a smaller loan.
I am assured that this is not a hustle. The problem is that I am not sophisticated enough to understand the logic. What is astounding is that the hustlers never say this. Hustlers always let the true believers do the talking. While the hustlers make off with trillions, I get the useful idiots explaining to me how it is the Greek’s fault.
When your economy has been financialized, the credit supply must expand in order for it to grow, or for the financial sector to grow, the credit supply must grow. The credit supply consists of credit instruments not debt. Debt is worthless. Credit instruments are an asset, but they require collateral.
The amount of debt is not the problem. The value of the collateral securing that debt is the problem. Until the value increases or the debt decreases or new more valuable assets are created to offset the lost value, there will be a problem. Everything is tied together, and you cannot understand the problem without understanding the system as a whole.
The only uncertainty is what will happen when Europe or China crash? Will they bring down the US also, or will the US become the port in the storm?
Balance sheet on top of long term problems. Our 4% growth rate, when we reached it in the last 35 years, was propped up by bubbles or deficit spending. We really don’t know if we are capable of 4% growth in a world we have competition from 2nd tier countries that we never had to face before, plus we have become a service economy.
Steve
I don’t disagree with that. However, I think that we need to acknowledge that our political leadership has been treating the problem exclusively as though it were an ordinary cyclic downturn. Whether you think that we can solve the problem by more federal government spending or from lower taxes, that’s the assumption. They are both forms of Keynesian pump-priming.
However, I think that we need to acknowledge that our political leadership has been treating the problem exclusively as
though it were an ordinary cyclic downturnan impediment to re-election and further raping of the country.FIFY