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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 | 3120133 Shizzmoney
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So this explains why every worker in America feels like they have a finger up their ass.

Thu, 01/03/2013 - 17:58 | 3120150 buzzsaw99
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Thu, 01/03/2013 - 18:05 | 3120169 A Nanny Moose
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Ill see your fist, and raise you a dump truck

Thu, 01/03/2013 - 18:08 | 3120179 derek_vineyard
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if thats a head and shoulders...the right shoulder has a hecka upmove still left in it

Thu, 01/03/2013 - 18:17 | 3120208 Michaelwiseguy
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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 | 3120230 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 | 3120250 NotApplicable
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It's more like they brainwash themselves, as otherwise, the pay isn't worth the stress (ala Santelli).


Thu, 01/03/2013 - 20:42 | 3120594 Dealer
Dealer's picture

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

Thu, 01/03/2013 - 20:03 | 3120484 Shizzmoney
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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 | 3120571 Freddie
Freddie's picture

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

Fri, 01/04/2013 - 03:27 | 3121283 Grill Boss
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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?

Thu, 01/03/2013 - 18:08 | 3120181 IvyMike
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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 | 3120190 stocktivity
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I see Tiny Timmy Geithner is bailing out before the SHTF -

Thu, 01/03/2013 - 18:37 | 3120257 NotApplicable
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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.

Thu, 01/03/2013 - 18:32 | 3120245 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 | 3120912 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 | 3120187 FL_Conservative
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Moon river, wider than a mile...............................

Thu, 01/03/2013 - 17:59 | 3120157 Dr. Richard Head
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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 | 3120214 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 | 3120396 Tinky
Tinky's picture

Are you certain that it was his finger?

Thu, 01/03/2013 - 18:00 | 3120158 AldousHuxley
AldousHuxley's picture

The squid has many fingers

Thu, 01/03/2013 - 18:28 | 3120233 max2205
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My new paycheck feels like gas went to $8.00

Thu, 01/03/2013 - 18:38 | 3120266 NotApplicable
NotApplicable's picture

Paycheck Lite. Less Filling!

Thu, 01/03/2013 - 22:01 | 3120828 Bunga Bunga
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20% less filling, 20% more healthy ... to give it a little positive spin.

Thu, 01/03/2013 - 18:55 | 3120312 yogibear
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Bubble Bernanke will make you appreciate that $8.00 gas when he's finished printing.

Thu, 01/03/2013 - 18:03 | 3120164 kaiserhoff
kaiserhoff's picture

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

Thu, 01/03/2013 - 18:10 | 3120184 DoChenRollingBearing
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@ 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 | 3120189 otto skorzeny
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are there still alot of old nazis running around Peru? that would be cool

Thu, 01/03/2013 - 18:17 | 3120206 DoChenRollingBearing
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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 | 3120310 otto skorzeny
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I think the curent  pope would be partial to reopening the old Vatican ratlines

Thu, 01/03/2013 - 18:12 | 3120198 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 | 3120247 Snakeeyes
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LOL! We ARE Fed and Bubble Dependent. Housing, student loans, subprime auto, etc.

Thu, 01/03/2013 - 23:27 | 3121039 ball-and-chain
ball-and-chain's picture

Life is a big bubble.

You live.

You crash.

You die.

That's a bubble.

Thu, 01/03/2013 - 17:57 | 3120140 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 | 3120186 Rainman
Rainman's picture

Took a while but fabian socialism WINS !

Thu, 01/03/2013 - 18:21 | 3120219 NotApplicable
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And they called it "A bailout."

Thu, 01/03/2013 - 17:57 | 3120141 TheDarkKnight
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We have a Pringel economy..

"Once you pop you can't stop"

Thu, 01/03/2013 - 17:57 | 3120143 kito
kito's picture

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

Thu, 01/03/2013 - 17:59 | 3120152 Motorhead
Motorhead's picture

Perhaps not, but I usually feel GREAT.

Thu, 01/03/2013 - 18:01 | 3120160 Dr. Richard Head
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Mr. Bubbles always iritated my foreskin.  I mean the bubble bath guy, not the bearded bubble guy.

Thu, 01/03/2013 - 18:11 | 3120193 buzzsaw99
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Mr. Bubbles always iritated my foreskin.

from that i know you aren't a central banker

Thu, 01/03/2013 - 17:58 | 3120146 Motorhead
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"(...if charts are not observable)"  Observable?  Getting uppity now, aren't we?


Thu, 01/03/2013 - 17:59 | 3120151 realtick
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Using only straight lines to analyze a chart is like using an erector set to make a model of a river.


Thu, 01/03/2013 - 18:04 | 3120165 realtick
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Business Insider Has Officially Lost All Credibility

Thu, 01/03/2013 - 18:22 | 3120220 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 | 3120234 NotApplicable
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Wait... you just now figured that out?

Thu, 01/03/2013 - 18:12 | 3120170 Ghordius
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"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 | 3120178 cosmyccowboy
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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 | 3120240 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 | 3120185 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 | 3120205 polo007
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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.

Thu, 01/03/2013 - 18:18 | 3120209 Hayek FA
Hayek FA's picture

Fuck You Greenspan.


and Fuck You Bernanke.

Thu, 01/03/2013 - 18:30 | 3120235 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 | 3120236 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 | 3120316 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 | 3120327 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 | 3120434 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 | 3120237 Lord Of Finance
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. . . And fuck you most especially J.M. Keynes.

Thu, 01/03/2013 - 18:32 | 3120248 IridiumRebel
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......but that shit worked according to the ethereal equations he did.

Thu, 01/03/2013 - 18:32 | 3120244 Salon
Salon's picture


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

Thu, 01/03/2013 - 18:35 | 3120252 uncle reggie
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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 | 3120288 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 | 3120401 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 | 3122017 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 | 3120363 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 | 3120388 Hayek FA
Hayek FA's picture

Gold with a Silver lining please!

Thu, 01/03/2013 - 20:44 | 3120603 SilverFish
SilverFish's picture

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

Thu, 01/03/2013 - 21:35 | 3120768 Atomizer
Atomizer's picture

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

Sound Familiar?

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