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America's Economic Reset Will Trigger Global Recession, New Crises
Submitted by Eugen Bohm-Bawerk
In Episode 1 we showed how the US labour market changed dramatically from the 1970s on back of excess money printing which allowed Americans to buy tradable goods on the international market, hollowing out its own manufacturing base, and essentially creating an unsustainable consumer driven economy where the broad masses get their employment within service sector.
We will now take that a step further and look at what this has meant for the US worker. As our first chart shows, non-supervisory real wages stagnated in the early 1970s and has essentially remained flat ever since.
Measured labour productivity on the other hand continued upward, but its rate of growth shifted down. More on this in our next blog post.
The American middle class, i.e. the non-supervisory workers, managed to grow their consumption in the midst of stagnating wages through
- moving to two income households (women constitute almost 50 per cent of the labour force today)
- by increasing debt
It should be clear that when the share of women in the labour force has reached 50 per cent and further leverage of a shrinking household income has become counterproductive the end-game has started. The only way to increase living standards from here will be the old fashioned way; consume less than you produce and productively invest the surplus.
This brings us back to the previous post, where we suggested the end-game will be one where global manufacturing powerhouses such as China, Japan and Germany will discover their overexposure to exports to the same extent that the US is overexposed to its service sector. As Americans start to save more, invest it domestically and rebuild their manufacturing base global exporters will be forced to do the opposite. Needless to say, this change will not come voluntarily, but through recession, financial crisis and necessity. Excesses must be liquidated at some point, no matter.
But why did US wages stagnate? Simple, through a Faustian bargain they traded highly productive jobs in the manufacturing sector for low productive jobs in the service sector. While it felt great at the time – we are all amazed to see the convenient lifestyle Americans live – it came with long term consequences.
As the US employment changed toward part-time, low benefit, low paid service sector jobs the quality in the overall labour market deteriorated. We have made a job quality index to depict just this. Unsurprisingly, this index, along with so many, peaks right after Bretton-Woods collapses. And the really scary thing is how it has completely fallen off a cliff in the period after the financial crisis.
And while we could conclude this missive here, we will repeat an argument we made in How the FOMC got institutionally corrupt because it is a direct result of the changes that has occurred in the US labour market.
The so-called wealth effect that rules today’s macroeconomic model output brings quacks and charlatans like Greenspan to claim that stock market gains cause economic growth; perversely enough they are semi-right due to faulty concept of GDP and the way inflated asset values in the US can be used as leverage to purchases tradable goods on the international market. The last chart today talks volumes about what is going on in US policy circles, and why things have become as confused as they are.
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Poor q99x2. You worked your whole life for that? I sailed around the world for 20+ years working on different islands and living on the boat for very low cost. I saved every time I worked and cruised and lived off the savings between jobs. When the 08 crash hit I was working in the Cayman Islands and bought a house in S Florida with the savings from one year of work. In 09 I bought a condo in West Palm Beach with the savings from 2 months of work. Life can be really good when you get out and explore the world. The downside was that my Fijian wife of 18 years abandoned me and my daughter who is now in college so I'm land bound until she finishes but at least I have a cheap place to live and some great memories and experiences.
Don't know if I'll live long enough to experience the crash I've been reading about in ZH for over 6 years now. And I'm only 33! Interesting reading though and the best economic analysis anywhere....except for the solid prediction types who always have something to sell, be it books, gold, survival skills, etc.
Skyprince
Let's say there are 2 villages.
One of the villages earns their living by growing food, building homes and making clothes. In this village the people have pride of workmanship and refuse to sell or buy anything but the best of quality. As a convenience, this village uses and shares money with their neighboring village.
By agreement the neighboring village prints the money. The first village makes their money by earning it. The second village prints money and can purchase real assets with their conjuring.
In printing money there is an implied trust, a social contract. If it takes you an entire lifetime to earn and save a million dollars but your neighboring village can conjure it up in an instant, and crowd you out- effectively confiscating your hard work- then they, not you, have abrogated the agreement. Sell them nothing at any price. Keep as small a foot print as you possibly can.
And the smarmy criminals will wither and die.
>>>Sell them nothing at any price. Keep as small a foot print as you possibly can.
And the smarmy criminals will wither and die.
Hear, hear!
Meet the new crisis. Same as the old crisis.
Yes, on the financial frauds, though we have newer, better, hybridized ones now.
The endless nuclear disasters that will extract everything are relatively new, for every living thing.
Ah, progress.
Can't survive with it. Can't suvive without it.
.....Regardless, a reset must occur. The reset must include manufacturing and farming, but most importantly government. Until our tax rate is reduced to very near zero and our government bureaucracy at all levels is eliminated we cannot recover.
.....We must re-organize from the bottom. No more federal banking system. No more government welfare. No more government subsidies. We must relearn how to take care of ourselves first and then relearn how to build our local communities.
First car purchase was a 68 black over blue 68 Chevy Impala fastback. Mag wheels etc . 670.00. Bought in 1973. Few miles . Got in bidding war with best friend who topped out at 625.00. I was making 3.95 an hour as apprentice meat cutter. Those were the days .
Good summary. The only way around this is to have 2, 3, 4 or 5 wives.
Bring on the Muslim girls.
the county I live in (in NY state) spends 89 cents of every tax dollar on 'mandated programs' like medicaid, assistance for needy families, and 'indigent legal services'. in exchange I receive no water, sewer, garbage services. my county road is crumbling at the shoulders and the local fire department now bills for routine calls. i plow the snow down to the main road so i can get to my job after a storm.
i have worked continuously for 33 years and it now occurrs to me that i am an idiot. i should have simply opted for Life on the Tit and been a foot soldier in the now-all-powerful Free Shit Army. Où est ma roue libre de fromage?
AMERICA has big problems. And as you suggest, one of the biggest problems is a lack of Productive Investment.
BUT THE CAUSE of the global recession now is China. China might be in a "growth recession", or they might have a full-blown recession. But when the Chinese economy sneezes, the rest of the world gets pneumonia!!
Another superficially sensible article, which does not address the degree to which civilization has become runaway criminal insanities. The article above does not admit and address the deeper reasons how and why civilization necessarily operates according to the principles and methods of organized crime, because the death controls must and do exist, and are central to everything else.
The article above promoted ridiculously old-fashioned notions regarding what will happen to systems of globalized electronic monkey money frauds, backed by the threat of the force from apes with atomic bombs, when those are more and more running into the limits of diminishing returns from having strip-mined the planet's natural resources at an exponential rate, while building up and UP the total of human activities and population upon that basis ... The more probable futures are debt insanities provoking death insanities, out of which such severe social storms might survive some new systems of death controls backing up debt controls.
To me, what an article like the one above actually emphasizes is the degree to which it is politically impossible to have any more rational resolutions of our problems, due to the vast majority of people having been conditioned to be deliberately ignorant and in deep denial of what those problems are ... An article like the one above is another classic example of how it is possible to be superficially right, and profoundly wrong, at the same time.
Denial is a form of self preservation, Radical Marijuana. It serves a purpose on an individual level, and on a national level. If politicians are heading up the denial it should not seem too wierd if the populous follows suit. I get your angst, but there are literally thousands on Z/H alone that get that which is paradoxical.
I'm listening to Wilson Pickett, yippie!!!!!
put some good tunes on and fire up a BIG reefer.
At the midnight hour!
https://www.youtube.com/watch?v=Zmzv5xJ4wE4
Another word or term for this is -- catharsis. And we are going to learn to embrace this for a while ..
http://www.thedailybell.com/exclusive-interviews/3791/Anthony-Wile-Colon...
At the same, a post-collapse plan does exist complete with funding. It has been presented several times to the very highest of levels of govt and industry, including the G8, so far apparently falling on deaf ears. Perhaps, at this point it is a moral imperative to suffer collapse before real catharsis becomes genuine.
http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...
http://www.veteranstoday.com/2015/01/02/wanta-plan-must-be-deployed-now/
http://www.veteranstoday.com/2015/06/18/wanta-black-swan-white-hat-on-am...
Nothing is for free. And I think $16.95 is a small fee compared to the benefits of larger mindshare required for real action. Now if one must have it for free, then this can be accommodated, yet a first revision and not completely up-to-date as the latest Kindle version:
http://www.wantarevelations.com/evidence/WANTA-Book.pdf
For myself, I have been going through personal catharsis since 2004. Since that time, I have lost my home to foreclosure. My skill set though increased since to 2012, and now atrophying with little means to keep it up-to-date. I'm 55+, so that does not aid me, especially when age discrimination is in high gear, courtesy of the ACA.
Since the winter of '13, I'm living with my 80 year old parents, by the grace of God. Since the summer of 2012, I have not had a perm job worth discussing. (Not to mention interviews in downtown Houston, with energy firms dangling 95k in front of me, if I only had this minimal one year experience in this particular tool, not willing to budge for a lesser role, at half that salary for an OJT position) Part-time gigs and project/contracts not enough to sustain myself.
If not for family, I would be living under a bridge, or a veterans shelter if they will have me. So, I know what [economic] Depression is. Soon the rest of you will, because quite frankly as this Marine only knows how to communicate to a dumbed down populace, that blew their opportunity before September 7, 2006, we committed major - FUBAR!
None of this disaster porn ever happens. Ever.????
Central Banks have been expanding the money supply and had their foot to the floor yet economies across the world are not even close to escape velocity. Lessons from the "Financial World" are being doled out rather rapidly these days and it is best to pay close attention.
The many new tools added to the central banks' tool boxes have masked and distorted the economic landscape. This can be seen in the explosion of derivatives, more debt leveraging, and in the growing carry trade. It is a fact that unproven tools can produce damaging results when not prudently applied still efforts to "extend and pretend" seem almost unlimited.
Many people thought Modern Monetary Theory (MMT) was to be our salvation and a tool to even out economic cycles but instead it has morphed into a massive dept machine. While those in charge appear undaunted by what is occurring the fact is by a series of off-book and backdoor transactions they have transferred losses from the banks onto the shoulders of the people. The article below explores the lessons to be learned from this experiment.
http://brucewilds.blogspot.com/2015/08/lessons-from-financial-world.html
"As Americans start to save more..."?????????????
Who does this dude think he is addressing with this article?
Americans are unable to save more, BuckO.
what is certain is that the entire world is massively awash in increasingly unsustainable debt.
the end of this mess is progressively sooner than later and we know it won't be pretty.
Please explain HOW you determine the "Quality Index" and how it is derived. Good grief.
Reset is a term used by folks from LaGarde to Jim Willie. I don't think it means much unless it is further defined.
I say it is a total loss of the dollar in a hyperinflationary maelstrom. This will mean the USA needs a new currency. the reset will be to ZERO for everyone with paper assets PLUS whatever real things they possess at the time. I doubt it will be some 'fair' redistribution of wealth according to a socialist plan.
I certainly would not count on a government that has just led us into the storm at such a time.
Answer me this!
How do you save when the instruments of saving are being manipulated to push you away trom using them to save /preserve your wealrh?
How do you think about savings when the merdia is trying to convince you that savng "money" is wrong while iinvesting in rhe "market' ismthe way o generate wealth?
Answer these ?'s and you will soon find out that its all bullshit!
In 1913 tuxedos were hand made from expensive materials.
Since then we have had mass production of all the inputs to a tuxedo and fancy machines to cut and sew.
The standard tux should be a lot cheaper now.
However a top line tux 1913 and now, 1 oz gold
"As Americans start to save more, invest it domestically and rebuild their manufacturing base global exporters will be forced to do the opposite."
Americans have been exporting their inflation for years and now what results is the rest of the worlds fault?
Like all former empires the American one will crumble, just read your (world) history. There is no "manifest destiny". America is just another country no matter what you might have been conditioned to think. Get used to it.
China abandoning communism put a huge new pool of unskilled labor into play, which could not help but reduce manufacturing wages worldwide. And today, even the Chinese are losing manufacturing to countries that compete for foreign investment with a pool of cheap labor.
Complain all you like, but people living overseas have the same right to earn a living as everyone else.
It's sick what the Fed and Nixon (well, and almost every other president the past century) have done to our economy. Consider this...
In the late-1950s, my grandfather was making $40,000, without a college degree. That was about what doctors and lawyers in WV were making at the time. That's equivalent to $330,000 today. His job? Cutting glass for car windows. What do you think the purchasing power of his retirement savings and pensions, based on a $40,000 a year salary, is worth today? Not quite as much as one based on $330,000.