Same story different day? As As Dr. Palley argues is his report entitled: America's Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession, our current economic growth model depends on asset price inflation (ex. increase in housing prices). This asset price inflation has replaced income and wage growth and allows us to assume more debt by borrowing more against these inflated assets. This increase in debt replaces income and wages.

Now that the worst of this economic crisis may be behind us (according to some), it looks like we are returning to this flawed economic growth model. Yesterday, the Federal Reserve release its Flow of Funds Accounts which measures household net worth (assets and liabilities). The headlines from yesterday said: U.S. household wealth up for first time since 2007. The Fed reported that household net worth (difference between assets and liabilities) grew by $2 trillion to $53.1 trillion in the second quarter of 2009. The first such increase since 2007. But how did it increase - real estate prices and stock & bonds. Can you say asset price inflation?

And what about incomes? Census Bureau recently released new income data and based USA Today's analysis of the data its not a pretty picture:

The incomes of the young and middle-aged — especially men — have fallen off a cliff since 2000, leaving many age groups poorer than they were even in the 1970s, a USA TODAY analysis of new Census data found.

People 54 or younger are losing ground financially at an unprecedented rate in this recession, widening a gap between young and old that had been expanding for years.....

Household income for people in their peak earning years — between ages 45 and 54 — plunged $7,700 to $64,349 from 2000 through 2008, after adjusting for inflation. People in their 20s and 30s suffered similar drops. Older people enjoyed all the gains.

According to USA Today's analysis it is not bad forever one: older people and women have seen income gains. Why?

• Older people are working longer and social security and private pensions have helped.




• Women are working longer hours and narrowed the gender pay gap (although there is still a gap)

So, there it is - same story different day - asset price inflation replaces income growth. This economic growth model must change. If it doesn't we will be revisiting an even worse economic crisis in the near future. Is that something you are willing to risk?