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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Shizzmoney's picture

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

A Nanny Moose's picture

Ill see your fist, and raise you a dump truck

derek_vineyard's picture

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

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.

XitSam's picture

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

NotApplicable's picture

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


Dealer's picture

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

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).

Freddie's picture

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

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?

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.

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?

(Tyler gets kinda touchy about this rudeness sometimes)

Netiquette is your friend.

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.

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.

FL_Conservative's picture

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

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.

DoChenRollingBearing's picture

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

Tinky's picture

Are you certain that it was his finger?

AldousHuxley's picture

The squid has many fingers

max2205's picture

My new paycheck feels like gas went to $8.00

NotApplicable's picture

Paycheck Lite. Less Filling!

Bunga Bunga's picture

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

yogibear's picture

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

kaiserhoff's picture

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

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.

otto skorzeny's picture

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

DoChenRollingBearing's picture

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



otto skorzeny's picture

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

otto skorzeny's picture

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

Snakeeyes's picture

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

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.

Rainman's picture

Took a while but fabian socialism WINS !

NotApplicable's picture

And they called it "A bailout."

TheDarkKnight's picture

We have a Pringel economy..

"Once you pop you can't stop"

kito's picture

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

Motorhead's picture

Perhaps not, but I usually feel GREAT.

Dr. Richard Head's picture

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

buzzsaw99's picture

Mr. Bubbles always iritated my foreskin.

from that i know you aren't a central banker

Motorhead's picture

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


realtick's picture

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


Rainman's picture

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

NotApplicable's picture

Wait... you just now figured that out?

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

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!

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.

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.