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Guest Post: America's Bubble Dependent Economy

Tyler Durden's picture





 

Via Global Macro Monitor,

Interesting chart (which we marked up) from the JEC of the U.S. Congress illustrating household net worth as a percent personal income.   If that doesn’t look like a head and shoulders formation in the making, nothing does!

The second chart illustrates why the U.S. economy is so dependent on the wealth effect generated by asset bubbles.   It’s stunning to think that average real earnings in the U.S. are almost 11 percent lower than where they were in 1973.

Policymakers’ focus should be on increasing worker productivity through: 1) reforming the country’s education system;  2) unleashing entrepreneurship;  and 3) in the words of ECB chief, Mario Draghi, “doing whatever it takes” to empower small businesses.

This is tough political business, however, so we take the easy way out.   The political pandering increases budget deficits, forcing the Fed to repress interest rates and print money to drive up asset prices.   The boom side of the cycle is sustained longer than most expect because of the reserve currency status of the dollar.  This temporarily generates artificially inflated demand (i.e, fake) through the wealth effect, which eventually collapses when asset markets crash.

Wash, rinse, repeat.

This is not a good long term economic strategy and sustainable path for permanent wealth creation, folks.  It probably won’t change until it is forced upon us and then the adjustment will be more abrupt and disruptive than if policymakers were more pre-emptive.

America needs Mario Monti!

Jan2_Household Net WorthJan2_Real Wages

(click here if charts are not observable)

 


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Thu, 01/03/2013 - 17:53 | Link to Comment Shizzmoney
Shizzmoney's picture

So this explains why every worker in America feels like they have a finger up their ass.

Thu, 01/03/2013 - 17:58 | Link to Comment buzzsaw99
buzzsaw99's picture

fist

Thu, 01/03/2013 - 18:05 | Link to Comment A Nanny Moose
A Nanny Moose's picture

Ill see your fist, and raise you a dump truck

Thu, 01/03/2013 - 18:08 | Link to Comment derek_vineyard
derek_vineyard's picture

if thats a head and shoulders...the right shoulder has a hecka upmove still left in it

Thu, 01/03/2013 - 18:17 | Link to Comment Michaelwiseguy
Michaelwiseguy's picture

When MSM TV news reporters talk about the economy, Do you think they are conscientiously aware of the devastating damage the Federal Reserve Corporation has done to the country with all their economic bubbles?

It seems they can only blame the presidents of various stripes continually for the nations economic demise.  I believe TV news reporters are conscientiously aware of the Fed's role and consciously lie to the American people on a daily basis, trying to brainwash their audience into believing it's this presidents or that presidents fault. It's very easy to see their grade school deception and mind game their playing on the American people. I'm very glad few people tune into their trash these days.

Thu, 01/03/2013 - 18:26 | Link to Comment XitSam
XitSam's picture

There are a lot of people that I would like to know better with the techniques of Shan Yu.

Thu, 01/03/2013 - 18:34 | Link to Comment NotApplicable
NotApplicable's picture

It's more like they brainwash themselves, as otherwise, the pay isn't worth the stress (ala Santelli).

 

Thu, 01/03/2013 - 20:42 | Link to Comment Dealer
Dealer's picture

I love Rick Santelli.  But I love Kyle "Nickles" Bass so much more.

Thu, 01/03/2013 - 20:03 | Link to Comment Shizzmoney
Shizzmoney's picture

And from the looks of this chart, this new bubble maybe bigger than the last 3 combined!

On top of that, it's shelf life will be much more violent, because the gains from such bubble will only be made that those at the tippy top, unlike the rest (which hit the plebs on a big enough scale they were encouraged to take on debt).

Thu, 01/03/2013 - 20:35 | Link to Comment Freddie
Freddie's picture

TV and Hollywood are for reatrds who like fairy tales and lies. 

Fri, 01/04/2013 - 03:27 | Link to Comment Grill Boss
Grill Boss's picture

When people on ZH talk about the economy do you think they have any clue the USA has been exercising a bankruptcy since 1933? who and what the ESF is? or that the IRS HAS NO STANDING IN THE USA AS SHOWN IN COURT? 

http://bcfreedom.wordpress.com/2012/12/30/how-it-all-happened/

Thu, 01/03/2013 - 18:08 | Link to Comment IvyMike
IvyMike's picture

City-Statist society (Civilization) is itself a bubble that always collapses, with increasing complexity being subject to the rule of diminishing returns.

See Joseph Tainter’s 1988 The Collapse of Complex Societies for further details.

Thu, 01/03/2013 - 18:10 | Link to Comment stocktivity
stocktivity's picture

I see Tiny Timmy Geithner is bailing out before the SHTF -

http://finance.yahoo.com/news/geithner-said-plan-departure-debt-17401504...

Thu, 01/03/2013 - 18:37 | Link to Comment NotApplicable
NotApplicable's picture

If you're going to post a link to a story here, be nice and look for it on ZH first, okay?

http://www.zerohedge.com/news/2013-01-03/geithner-out-march

(Tyler gets kinda touchy about this rudeness sometimes)

Netiquette is your friend.

Thu, 01/03/2013 - 18:32 | Link to Comment balz
balz's picture

Right. Unless the civilization can run on infinite energy. Which was possible until Peak Oil. Now the reality of the first economy (nature) can't be ignored in the second and third economies (human work and money).

John Michael Greer is a good read too.

Thu, 01/03/2013 - 22:33 | Link to Comment three chord sloth
three chord sloth's picture

Infinite energy and infinite knowledge. I think the knowledge problem is bigger than the energy one... our "elites" make more problems with their "fixes" than they solve.

Thu, 01/03/2013 - 18:11 | Link to Comment FL_Conservative
FL_Conservative's picture

Moon river, wider than a mile...............................

Thu, 01/03/2013 - 17:59 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

A finger up the ass would feel pretty good compared to the High Frequency Dildo-Fist being pumped up me sphincter.

Thu, 01/03/2013 - 18:20 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

MY doctor's finger sure felt a LOT fatter than at my last check-up...

Thu, 01/03/2013 - 19:31 | Link to Comment Tinky
Tinky's picture

Are you certain that it was his finger?

Thu, 01/03/2013 - 18:00 | Link to Comment AldousHuxley
AldousHuxley's picture

The squid has many fingers

Thu, 01/03/2013 - 18:28 | Link to Comment max2205
max2205's picture

My new paycheck feels like gas went to $8.00

Thu, 01/03/2013 - 18:38 | Link to Comment NotApplicable
NotApplicable's picture

Paycheck Lite. Less Filling!

Thu, 01/03/2013 - 22:01 | Link to Comment Bunga Bunga
Bunga Bunga's picture

20% less filling, 20% more healthy ... to give it a little positive spin.

Thu, 01/03/2013 - 18:55 | Link to Comment yogibear
yogibear's picture

Bubble Bernanke will make you appreciate that $8.00 gas when he's finished printing.

Thu, 01/03/2013 - 18:03 | Link to Comment kaiserhoff
kaiserhoff's picture

Well yes, but in our Fearless Leader's case, there is a simpler explanation.

Thu, 01/03/2013 - 18:10 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

@ Shizzmoney

+ 1

None of this surprises me.  Real wealth among almost everyone (only a few exceptions) I know is indeed no better than the 1970s, which we all thought was pretty bad...

***

The Bearing household has taken two big steps to preserve wealth, rather than roll the dice to increase it:

1) Holding physical gold

2) Having a successful business in Peru 

Note, my first THREE business ventures were all FAILURES.  It's not easy.

Thu, 01/03/2013 - 18:10 | Link to Comment otto skorzeny
otto skorzeny's picture

are there still alot of old nazis running around Peru? that would be cool

Thu, 01/03/2013 - 18:17 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Muy pocos Nazis alli!  But, maybe you should use your old networks, go down there and see for yourself!

 

;)

Thu, 01/03/2013 - 18:53 | Link to Comment otto skorzeny
otto skorzeny's picture

I think the curent  pope would be partial to reopening the old Vatican ratlines

Thu, 01/03/2013 - 18:12 | Link to Comment otto skorzeny
otto skorzeny's picture

don't knock it til you've tried it-"Spaulding-you don't know where that finger's been"

Thu, 01/03/2013 - 18:32 | Link to Comment Snakeeyes
Snakeeyes's picture

LOL! We ARE Fed and Bubble Dependent. Housing, student loans, subprime auto, etc.

http://confoundedinterest.wordpress.com/2013/01/03/happy-new-year-mortga...

Thu, 01/03/2013 - 23:27 | Link to Comment ball-and-chain
ball-and-chain's picture

Life is a big bubble.

You live.

You crash.

You die.

That's a bubble.

http://www.angrysinner.blogspot.kr/2013/01/yesterday-dragon-lady-served-beef-and.html

Thu, 01/03/2013 - 17:57 | Link to Comment spinone
spinone's picture

What we see is the serial financialization of different sectors of the economy, then the pillaging of that sector by the financial elite interests, aided and abetted by the government.

Thu, 01/03/2013 - 18:09 | Link to Comment Rainman
Rainman's picture

Took a while but fabian socialism WINS !

Thu, 01/03/2013 - 18:21 | Link to Comment NotApplicable
NotApplicable's picture

And they called it "A bailout."

Thu, 01/03/2013 - 17:57 | Link to Comment TheDarkKnight
TheDarkKnight's picture

We have a Pringel economy..

"Once you pop you can't stop"

Thu, 01/03/2013 - 17:57 | Link to Comment kito
kito's picture

bathing in bubbles doesnt make the world clean..................................

Thu, 01/03/2013 - 17:59 | Link to Comment Motorhead
Motorhead's picture

Perhaps not, but I usually feel GREAT.

Thu, 01/03/2013 - 18:01 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

Mr. Bubbles always iritated my foreskin.  I mean the bubble bath guy, not the bearded bubble guy.

Thu, 01/03/2013 - 18:11 | Link to Comment buzzsaw99
buzzsaw99's picture

Mr. Bubbles always iritated my foreskin.

from that i know you aren't a central banker

Thu, 01/03/2013 - 17:58 | Link to Comment Motorhead
Motorhead's picture

"(...if charts are not observable)"  Observable?  Getting uppity now, aren't we?

 

Thu, 01/03/2013 - 17:59 | Link to Comment realtick
realtick's picture

Using only straight lines to analyze a chart is like using an erector set to make a model of a river.

WAVES ARE CURVILINEAR

http://curvilinearwaveanalysis.blogspot.com/

Thu, 01/03/2013 - 18:04 | Link to Comment realtick
realtick's picture

Business Insider Has Officially Lost All Credibility

http://chartistfriendfrompittsburgh.blogspot.com/2013/01/business-inside...

Thu, 01/03/2013 - 18:22 | Link to Comment Rainman
Rainman's picture

BI can't even scare up big busted snogg t-shirt ads, so fuk em I say

Thu, 01/03/2013 - 18:28 | Link to Comment NotApplicable
NotApplicable's picture

Wait... you just now figured that out?

Thu, 01/03/2013 - 18:12 | Link to Comment Ghordius
Ghordius's picture

"in the words of ECB chief, Mario Draghi, “doing whatever it takes” to empower small businesses"

do I sense some "goodiness" attached to the words ECB, Draghi, euro-, etc.?

however: getting out of small business's way would be a fucking good start

last time the French king's FinMin asked that very question he got this answer: "laissez faire"

but this means protect it from it's natural enemies, too much state and too much "big biz"

regulations are necessary for big biz, not small biz based on personal risk

too complicated tax codes are one part of the problem, big biz let's small biz carry the load alone

Thu, 01/03/2013 - 18:07 | Link to Comment cosmyccowboy
cosmyccowboy's picture

you mean to tell me i had more real income in 1972 working at the DQ for 60 centa an hour... imagine that!

Thu, 01/03/2013 - 18:31 | Link to Comment NotApplicable
NotApplicable's picture

Sorry, had to downvote you. Snark is supposed to be humorous because it's true, not because you're confusing the issue in order to sound funny.

Thu, 01/03/2013 - 18:08 | Link to Comment otto skorzeny
otto skorzeny's picture

Real earnings drop is "stunning" if you have been in a coma sice Tricky Dick got us off of the gold standard and we started shipping good jobs out of the country.

Thu, 01/03/2013 - 18:16 | Link to Comment polo007
polo007's picture

The creation of money

In practice, it works like this: For every $10,000 a bank gives out as loans, $1,000 or $2,000 have to be deposited at the central bank. That means, if a bank collects $100,000 in deposits, it could keep $10,000 for liquid cash, put $90,000 into deposit with the central bank, and it is then allowed to create $900,000 of fresh money just by writing the figures on someone’s accounts!

In the case of the government needing money to spend, the procedure is slightly different, but the result is the same. The government has to issue papers that promise interest and repayment. Those papers are "bought" by the banks, who "sell" them to their wealthy clients, or who may also keep them, and the government gets credited an equivalent sum of money.

The irony here is that the government, who should by rights be the issuing authority of the money that circulates in the country, has to borrow the money from privates (through the bank) and that is has to pay interest for this. Now we start to see why the government never has money, and why much of our taxes go "off the top" of the budget, towards debt service.

http://www.hasslberger.com/economy/money.html

Thu, 01/03/2013 - 18:18 | Link to Comment Hayek FA
Hayek FA's picture

Fuck You Greenspan.

Oh..

and Fuck You Bernanke.

Thu, 01/03/2013 - 18:30 | Link to Comment dumpster
dumpster's picture

Policymakers’ focus should be on increasing worker productivity through: 1) policy makers need to stop making policy and stop trying to increase or decrease any thing just go home one cycle of gameing the system \  go  find a real job

Thu, 01/03/2013 - 18:30 | Link to Comment balz
balz's picture

Peak Oil in the U.S. was in 1971.

Peak Oil in the world was in 2005.

Once you know that, you know everything.

Nuff said.

Thu, 01/03/2013 - 18:55 | Link to Comment edifice
edifice's picture

Once things really hit the fan, oil consumption will grind to a halt, extending the curve way out. With how things will most likely play out, Peak Oil is a myth.

Thu, 01/03/2013 - 19:00 | Link to Comment balz
balz's picture

Actually Peak Oil is not a myth and the declining EROI will compensate the slowdown of the economy, making oil less and less affordable. But of course you are free to believe in fairytales.

Thu, 01/03/2013 - 19:46 | Link to Comment Marco
Marco's picture

Strictly speaking that would not make peak oil a myth, oil production falling off due to a permenant shift in the status quo of economic growth would still mean it peaked.

Thu, 01/03/2013 - 18:30 | Link to Comment Lord Of Finance
Lord Of Finance's picture

. . . And fuck you most especially J.M. Keynes.

Thu, 01/03/2013 - 18:32 | Link to Comment IridiumRebel
IridiumRebel's picture

 

 

 

......but that shit worked according to the ethereal equations he did.

Thu, 01/03/2013 - 18:32 | Link to Comment Salon
Salon's picture

Ouch

Level 3a ballistic face shield and helmet combo set me back 500 each.
Revolutions don't come cheap, but they do take Visa or Mastercard.

Your marching orders patriots. Please spread this link to other patriots and ask them to spread it further. Make it go viral

http://www.bob-owens.com/2012/12/what-youll-see-in-the-rebellion/

Thu, 01/03/2013 - 18:35 | Link to Comment uncle reggie
uncle reggie's picture

Policymakers’ focus should be on increasing worker productivity through: 1) reforming the country’s education system;  2) unleashing entrepreneurship;  and 3) in the words of ECB chief, Mario Draghi, “doing whatever it takes” to empower small businesses.

Wrong! Worker productivity is not the ill that ails this nation's economic system. Nothing, NOTHING, needs to be addressed more urgently than the on-going, fundamentally unjust policies that blatantly favor Corporations and the financial elite at the ever increasing expense of the rest of the population. Corporations OWN our government. They are setting the agenda, determining "policy" and reaping the rewards. Your "fixes" are exactly what the Corporate Masters would like more of. Nice to know which side you're on.  

Thu, 01/03/2013 - 18:44 | Link to Comment Peter Pan
Peter Pan's picture

Unleashing the power of small business is dependent upon curbing the power and stupidity of big government.

A family member lodged in 2012 a building application for refitting an existing factory which they were assured at the three month mark was almost complete. It took another 3 months from that point because an issue arose about what kind of dividing fence the council wanted between the factory and the adjoining factory.

That delay meant that interest on the mortgage ran for three extra months without being able to do anything about it. It also meant that employment and equipment purchases exceeding $400K was also delayed. The bank of course is doing well.

It is this sort of red tape at all levels that is hampering progress.

The Chinese are leaving us all for dead. People return home to find their homes demolished and a new road or building going through.

Neither of these extremes is desirable but at least employment is being generated at the Chinese end.

Thu, 01/03/2013 - 19:29 | Link to Comment pursueliberty
pursueliberty's picture

Until you own a business and do something involving government intervention in plans, you haven't seen the true worth of our government.  I was sent a fine for operating a jobsite in a area most don't pull a permit to build a house.  I guess a inspector wasn't meeting quota.  Anyway, this occured in november 11, recieved fine on 12/12.

Fri, 01/04/2013 - 11:25 | Link to Comment pursueliberty
pursueliberty's picture

Until you own a business and do something involving government intervention in plans, you haven't seen the true worth of our government.  I was sent a fine for operating a jobsite in a area most don't pull a permit to build a house.  I guess a inspector wasn't meeting quota.  Anyway, this occured in november 11, recieved fine on 12/12.

Thu, 01/03/2013 - 19:16 | Link to Comment Mad Muppet
Mad Muppet's picture

Please God, give us another bubble...I promise not to piss this one away!

Thu, 01/03/2013 - 19:24 | Link to Comment Hayek FA
Hayek FA's picture

Gold with a Silver lining please!

Thu, 01/03/2013 - 20:44 | Link to Comment SilverFish
SilverFish's picture

I have no idea what this means, but pie charts always explain things best.

 

 

http://flowingdata.com/wp-content/uploads/yapb_cache/piechart_300x1981.6...

Thu, 01/03/2013 - 21:35 | Link to Comment Atomizer
Atomizer's picture

According to the Democrats: Nancy Pelosi: Unemployment Benefits "Creates Jobs"

Sound Familiar?

Do NOT follow this link or you will be banned from the site!