An Economy Fueled, Funded and Fed by Debt

Debt, debt, an economy fueled, funded and fed by debt. That's what many economists and economics bloggers are reporting via real bona fide facts.

Via the Manufacturing and Technology Newsletter, Dr. Charles W. McMillion reports:

In just the past seven years, U.S. household debt almost doubled and federal debt soared by near two-thirds, rocketing by a combined $10.5 trillion. The total combined debt of households ($14.4 trillion) and the federal government ($9.2 trillion) is now 168 percent of GDP, far higher even than in the brief spike during World War II

McMillion also weighs in on the lack of real policy change to address the underlying causes:

the only policies seriously considered by this year's crop of Wall
Street-funded political candidates is more short-term household and federal debt "stimulus." Locked into a failed, 30-year-old ideology of deregulation and debt, there is still no option to compete with the remarkably effective industrial and trade policies pursued by China and others.

Bonddad has some graphs illustrating the dramatic increase in overall debt to GDP. Basically we hyped the price of houses so people could borrow against them, which was a self-feeding vicious cycle of housing inflation and more debt.

Businessweek has an article, How Real was the Prosperity? where the subtitle is:

We're just beginning to figure out how much of the nation's recent growth was the result of a credit-induced frenzy

As of the third quarter of 2007, the 10-year growth rate for consumption was 3.6%, vs. GDP growth for the same period of 2.9%

In other words, we borrowed to give the illusion we were producing.

Here's a scary statistic from Business Week:

the [corporate] profit surge has been mainly in one area, financial services. Financial institutions have benefited from the consumer credit boom, the proliferation of new financial instruments, and relatively low rates

So, the profit was primarily from bad debt for the last 7 years. Can someone say Ponzi scheme?

McMillion on the misleading productivity growth:

BLS [jobs and employment] data (show output growth since 2001 is among the weakest since the Depression and the gain in total hours worked (just 0.5 percent) is, by far, the weakest. This is why productivity growth has appeared misleadingly healthy; productivity is a measure of output per hour of labor

And lest we not forget loophole statistics to inflate GDP via Phantom growthby assigning outsourced jobs as domestic production.

Maybe I should have added a forth "F" word to the the title?



The D of L numbers truthyness

Bob,those numbers and the statistics gathered by D of L have been problematic for years.

The outsourcing one is especially misleading as you point out. I remember the number "51" as the value for jobs lost to outsourcing offshore in the 2004 January listing and the Q. I had "??? what is this? " When I knew of the closing of Carrier/United Technologies to move to Singapore.

The reason was simple and a perfect out:

The company in Singapore was still owned by UT/Carrier. The requirement by the Bureau of Labor statistics was to report any closing of more than 50 in number lost, unless the jobs were transferred to a new location and not actually deducted from the company's count. So the 4100 jobs that vanished from New York magically reappeared in Singapore without the New Yorkers. So no need to report it as outsourced. In fact ,the separate listing for companies no longer in existence inside the USA (out of business or totally outsourced was getting to be so cumbersome it got deleted as a category in itself. Later in 2004. The defense for this is: the company is in business, profits are rolling in , what's the problem? Even though Americans just got shafted /RIFTED, turned out to scramble on a shrinking in most cases job market. The figures hide the facts for the American workers.

Those numbers that consistently underreport unemployment based on state Division of Unemployment Compensation transaction figures also drops the count when those 26 weeks are up. There is no follow up about new or re-employment in the same industry, it is left to announcements by the companies self reporting about their status.

The whole Dep of Labor is an embarrassment and headaches Washington politicians. it often reveals some bad news that annoys the people doing propaganda about how wonderful the economy is and creates a spark to maybe do something about it. There is a grudging allowance for it, but I feel its reporting is more and more intended to disguise trends, not have an honest accounting to guide policy decisions. That is our corporate masters and their hirelings in Washington (a.k.a.politicians) at work.