Have We Reached the End of the Private Sector Economy? 16 comments
-
Font Size:
-
Print
- TweetThis
Long-time readers of Gains, Pains, & Capital know that among our central themes are the real issues plaguing the US economy and how the powers that be have completely failed to do anything to remedy them.
For starters, we’ve pointed out that real US incomes have declined roughly 40% since their peak in the early ‘70s (which is why it now takes two working parents to make ends meet).
We’ve also detailed how the Federal Reserve used loose money and easy access to credit to “paper over” the massive decline in living standards in the US in the last 20 years. This process resulted in consumers increasingly resorting to financial speculation first with stocks, then more sophisticated financial instruments (options, futures) and finally houses (the largest asset a consumer ever buys) in their efforts to generate wealth.
The end result of this is that, by 2007, the US was literally saturated with debt on the consumer, state and federal government levels. This credit bubble burst, forcing systemic deleveraging, a portion of which involved the Financial Crisis of 2008 to the present (it’s nowhere near over).
One of the worst consequences of these trends (lower incomes, lower living standards, increased indebtedness) has been the slow, painful death of the private sector in the US economy. Regardless of whether you’re an individual or a corporation, excessive debt is like an anchor hanging around your neck, forcing you to work harder and harder simply to stay afloat.
The end result is that today we are literally witnessing the death of the private sector in the US economy. I realize that statement may appear too bold or outlandish, but let us consider the facts:
- There has been no private sector growth in the US for 10 years
- The US Government currently accounts for 18% of US incomes
- We’ve seen roughly 500,000 folks lose their jobs every week of this year, putting total firings for 2009 around 20 million
These data points lay out in no uncertain terms that the US economy is rapidly becoming a public sector economy. However, what I’m about to reveal is the real zinger.
According to research published in the November issue of Archives of Pediatrics and Adolescent Medicine, 50% of US children will be on food stamps at some point in their lives. Put another way, virtually everyone will know a family that has used food stamps at some point in their lives.
This is beyond staggering. The US, once thought to be the capital of capitalism, is now in a such a state that half of its children will require government aid to get a decent meal.
Nationwide, 36 million Americans are on food stamps right now. That’s 11% of the population. And it represents an 8 million (28%) increase from last year’s levels.
Hard to see how this translates into an economic recovery, isn’t it?
The reality is that neither the Stimulus nor the bailouts nor any of the Government’s moves have fixed the issues plaguing the US economy. Already in debt to our eyeballs, the powers that be figured that issuing more debt was the solution. It’s total madness. And it’s going to end very, very badly.
Welcome to the New Normal in the US. An economy in which Uncle Sam is the higher, lender, buyer, and feeder of last resort.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 16 comments:
Even Helen Keller could see and understand that this clearly illustrates a HUGE dislocation in POWER, not money. The few that already have the most, stealing even more while protected leadership (aka those WITH) also helping themselves to more.
Money is the catalyst, soon to be red herring, folks. Open your damn eyes. Ask yourself when you are going to get a bonus, or perhaps even a j-o-b.
Al Gore thinks "hyperbole" is a perfectly acceptable rhetorical tool when the simple facts fail to motivate the people to believe in your sales pitch. I'm no Gorian or Gorite or Goremonger or whatever Al's fans call themselves and I don't share his faith in the legitimacy of hyperbole, but I don't think Graham is using it.
For over 20 years all the economic growth has occurred in the corporate sector, especially financials, and government. If we describe the private sector as competitive free market businesses who do not receive legislative favors or other forms of government protections, then I think Graham is simply stating the facts. The truth, in this case, is itself hyperbolic.
Graham:
Good article. Thank you for mentioning the poor folks who are getting shafted by this recession.
I agree, however, with part of Venn Data's critique, above seekingalpha.com/artic...
VennData is correct to point out that taxes as a % of GDP HAVE oscillated around 18% of GDP for many years. Thus, this datum ALONE does not support you thesis that the government is becoming a larger share of the U.S. economy. VennData uses data from Perot Charts: perotcharts.com/2008/0.../
Nevertheless, YOUR CORE THESIS REMAINS CORRECT, and not "hyperbole" as VennData suggests. That's because the 18% tax burden is a lie--an accounting fiction. The U.S. federal budget deficit excludes government obligations for Social Security and Medicare, and these could bankrupt this country within a decade. In addition, the U.S. is now able to finance its debt at ridiculously low long-term interest rates. (3.6% for 10-year Treasurys? Fat chance that this will last.) Until now, the U.S. has been able to borrow from other countries with abandon. The weakening U.S. dollar, however, shows that foreign investors are losing faith in the greenback.
THE DEBT SNOWBALL
When inflation rises and the currency collapses, long-term interest rates will spike to double digits, making the deficit impossible to support. Rising interest rates make our debt like a huge snowball: Investors lose confidence, interest rates rise, and debt payments consume more and more of the Federal budget. Eventually, interest and debt payments will consume over 30% of GDP. Once this happens, say in 2018, the U.S. would be forced into either default or devaluation of the dollar.
In short, HYPERBOLE IS APPROPRIATE, since the U.S. has debts it cannot pay and a currency it cannot support. Things are going to get bad in the country. Then they are going to get strange. Really strange. I can't even say how, since we haven't been through something like this before. However, History suggests that a military hyperpower will not quietly go bankrupt.
______________________
In any case, I appreciate Graham's "hyperbole." It wasn't hyperbole two years ago to suggest the near collapse of the U.S. financial system. And it isn't hyperbole now for Graham Summers to suggest the end of the U.S. private sector economy.
Rob
Rob
Now add all the state/local public employees that are enjoying their paychecks, benefits and pensions due to the "largesse" of the Federal Treasury. Michigan alone has commandeered $1.8 BILLION to fill "budget gaps."
In 2006 I took a Business Law class (if you aren't learning, you're dying) and did a report that concerned small business. Hopped over to the SBA.gov website and it stated, as they have stated for the past three decades - to my knowledge - that small businesses accounted for 70% of the private sector jobs.
When I went back to the website in late '07 to grab some statistics for a blog I was publishing, the number had magically fallen to 50%. No explanation, no note, no nothing. So I sent an enquiry and *shocking* I still have not been enlightened by the department as to an official excuse for this.
That percentage (which would be nearly HALF of the small businesses) is just gone. Thousands upon thousands of jobs gone, gone, gone. Not mentioned in ONE newscast, one paper, or by one politician. Completely overlooked and ignored by all - except those that have never recovered from the closures.
Anyone with have a brain should be able to figure out where they went by going through the tags on items in their own homes and pantries (or make phone calls as canned & frozen foods do not have to tell us where the foods are grown, processed or packaged).
Yet, we continue to be told "global competition" is good for us. Good for "us" who? Obviously good for the record tax collections of the US Treasury (up to last year - funny how those have disappeared now) and really obviously good for mega-national CEOs and their executives. Was good for some stockholders but I get the feeling that it won't be good for much longer.
We traded industry, wealth and freedom for cheap fish sticks, cheap socks and government involvement at every level of our lives.
Fair trade don't you think? [/sarcasm]
Most people have lined up for generations of BS that built our present level of oppression. Now that the leadership has the wealth, power and control of MSM sufficient to nearly complete their illegitimate grab of power and the terms of the debate (as in, be "realistic," we needed more debt for failure, more government, whatever), people have to actually see what's going on around them as it collapses.
Or, the SBA website will not be lying if it says, small business accounts for 10% of jobs, government and it's annexed arms like healthcare, 90%. Rounding error: The ruling class.
That said, there is much truth in the pattern of private sector stagnation he describes when one looks at the broader US economy. It should be noted, however, that this atrophy in the private sector occurred during a 30 year period of deliberate public policy of low interest rates, deep cuts to many public services, deep cuts to tax rates and a general attempt to promote expansion of the private sector at the expense of the public sector.
Many now call for re-doubled efforts along this path of 30 years to cut the public sector and promote the private sector. I would argue (appreciating that this will be a novel and disturbing idea to many) that, at this juncture, both the public and private sectors need to be rebuilt to complement and support each other. At least we should give this serious consideration as a good case can be made that the privatization initiative of the past 30 years has produced, at best, mixed results.
In short, thinking outside the box is needed as to conclude without further thought that simply redoubling the efforts of the past 30 years is the answer to all problems is, at best, lazy thinking. Lazy thinking is the one thing that can not be afforded now.
I might add that I know plenty of people who use or have used food stamps and they aren't starving! I promise you. Many see food stamps as a birth right. One of my workers today complained to me that his energy assistance was not as generous as it had been. He was upset as he had "paid into it" like social Security. Food stamps should only be issued for American grown food products and only raw food stuffs should be included. The starving 50% would have to learn to cook. Then, to help them live healthy, they should have their allotment cut if they are overweight. Im sure that 50% number would drop quickly.
- Ludwig von Mises
In a company town, there was one giant employer. It was the coal mine, or the textile mill. You rented your house from the company, and you bought necessities at the company store. Everything was controlled by the company.
We have new paradigm emerging in our nation. We are moving toward becoming a company nation - the federal government is the new company.
The US government already controls about 30% of the economy. Others have commented here on the percentage of total government employment. As private employment continues to shrink, this number grows every day.
The FHA is beginning to rent homes to those homeowners who are in default. They are justifying it by saying we must wait until values rise before foreclosing and selling in order to make the taxpayer whole.
If we continue in the direction we are headed, the oligarchs will win
If we take action and vote out all incumbents, unseat all those who are beholden to special interests, dismantle the imperial federal government, and get rid of the Fed - it is not federal and there are no reserves - we still have a chance of reviving what is left of our nation for our children and grandchildren.
Communism, I seem to recall, is roughly defined as the government owning the means of production. Add the corporations to government (been happening for years), and except for a few holdout small businesses that's where we are.
Like the man said, look to China for free enterprise. Not too much of it here any more.
I fear that next it will be "look to China for freedom". As someone said above, hyperpowers don't shut down and go out of business without some really weird shit going down. Look at post-WWI Germany. Get your brown shirts out, folks.
<anyone say it?
The reason no one will say it is because "Communism" is the new "N" word.
Is the government forcing corporations to offshore millions of jobs or forcing corporations to close US manufacturing facilities and move them to Mexico, China, Vietnam or any developing country?
Is the government forcing the piracy and theft of US intellectual property in China, Indonesia, Brazil, Vietnam, and virtually every developing country. The US loses hundreds of billions of dollars annually from the theft and copying of patents, drugs, software, movies, product designs, etc. For example, millions of illegal copies of Windows 7 were in use in China before it was even released in the US for sale.
Should the government permit massive and deadly pollution in the US, just so corporations can avoid these costs and make more profits? There are many documented reports of large scale deadly pollution in China, India, Africa, and other countries from dealing with American dumping of toxic electronic obsolete products, and other American industrial obsolete waste. In fact it has been documentated on many occassions that so-called private American green recyclers, who supposedly get paid for safe disposal of toxic obsolete products, are in fact dumping significant amounts of their product in third world countries simply because it makes them more money to do so, even though it is highly illegal.
How has laissez-faire in the form of a largely unregulated derivitives market worked out since 1998 for the US capital markets and for the world?
Somebody has to make up the rules and attempt to provide at least some semblence of a level-playing field. Whether it is in commerce, justice, safety, education, or civil rights. The entity selected to do that has been government. Despite the fact that governments have done a pretty miserable job in many areas, it is even more probable that totally unregulated laissez-faire entities would have done even worse.
On Nov 04 07:48 PM The Geoffster wrote:
> Manufacturing and commercial monopolies owe their origin not to a
> tendency imminent in a capitalist economy but to governmental interventionist
> policy directed against free trade and laissez faire.”
> - Ludwig von Mises