Have We Reached the End of the Private Sector Economy?

by: Graham Summers

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.