Guest Post: 2011: The Last (Debt-Consumerist) Christmas in America

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

2011: The Last (Debt-Consumerist) Christmas in America

The end of debt-based affluence: welcome to The Last Christmas in America (TLCIA).

Almost 35 years ago, as unemployment rose toward 10%, the January 1975 cover of Ramparts magazine blared: The End of Affluence: The Last Christmas in America. (TLCIA)

The article wasn't referring to the religious celebration; it was referring to the postwar concept of Christmas as the frenzied, exhausting year-end pinnacle of our one true secular faith, Consumption, a final orgy of buying and binging.

It is instructive to recall how the Federal government responded to unemployment, high inflation and rising budget deficits in the early 1970s: it began fudging numbers, manipulating data to mask the politically inconvenient realities of rising inflation, unemployment and deficits by playing switcheroo with Social Security Trust Funds, inflation data, etc.--games it continues to play in 2011 to cloak reality from the media-numbed public.

The market was not so easily fooled. The Bear market, reflecting the "real" recession, lasted 16 years, from 1967 to 1982. Now statistics are echoing that last great recession: rising prices for essentials, systemically high unemployment and stagnant wages while the corporate media and the organs of statistical manipulation (a.k.a. the sprawling, putrid public-private cesspool of the Ministry of Propaganda) trumpet "the return of growth" and skyrocketing corporate profits.

(Today's propaganda: housing starts blip up due to statistical noise, and though starts are less than half pre-recession levels, this is heralded as "evidence" that "strong growth is back.")

The difference between the postwar boom of 1946 and the boom that followed 1982 is the last boom was based on the explosive expansion of debt. People didn't save and invest in productive assets; they went into debt to consume more and to become a "bigger" persona via the miracle of credit.

I often use this chart to make this point: if credit had expanded along with GDP, then we'd be considerably less indebted. Instead, it required a vast expansion of debt--some $30 trillion more than the rise in GDP--to fuel the 1982-2000 boom.


A funny thing happens when you depend on expanding debt to fund your consumption: eventually the cost of servicing your rising debt reaches the limit of your income, and you can't borrow any more, unless interest rates decline so you can leverage your income into higher debt.

Here's a chart of household debt: that little reversal in debt expansion sent the economy into a tailspin.


Lowering interest rates extends the era of debt-based consumption, but it only puts off the inevitable crash when the ability to borrow runs out. Eventually the cost of servicing this lower-interest debt absorbs all your disposable income, and the borrowing skids to an abrupt stop.

Two other bad things can make this dominance of debt servicing worse: your income can decline, and the value of your assets can decline. In this unfortunate situation, you're ability to service your existing debts is crimped by a loss of disposable income, and you're paying for assets whose worth has fallen below the debt taken on to buy the assets.

Income has declined significantly in the wake of the 2008 crisis/recession:


And here's the key asset of the middle class, housing:


This double-whammy of lower income and lower asset valuations is exactly where we are now. This is why the Fed's campaign to lower interest rates to zero and make it easy to borrow more have been as successful as pushing on a string; the economy is choking on over-indebtedness and overleveraging of stagnating income. There is no escape from this vortex except refusing more debt and writing off existing debt, wiping it off the balance sheets as an asset, driving lenders, banks and those holding debt as assets into insolvency.

As we saw yesterday, the velocityof money--that is, money actually being borrowed and spent or invested in the real economy--has plummeted to zero.


We all know the 16-year recession/malaise back in 1967-1982 had a "happy ending": huge new oil fields were discovered in Alaska, the North Sea, West Africa and elsewhere, ushering in a renewed era of cheap, abundant petroleum. President Reagan "saved" Social Security for a generation by raising contributions paid by employer and employees, and he heralded a "lower taxes, higher permanent deficits" ideology that is now accepted as the norm: deficits don't matter, even when they reach the trillions, because our good friends the Gulf Oil Exporters and Asian exporters will buy all our debt forever, keeping interest low forever.

(And if they drop the ball, then the Federal Reserve will print money and buy the Treasury bonds. Sweet! We don't need any external buyers, just the Federal Reserve.)

Then the U.S. created and launched two revolutionary technologies which both created new wealth around the globe: the personal computer (microprocessor and cheap RAM) and the Internet (TCP/IP, Ethernet, and the commercialization of Tim Berners-Lee's World Wide Web with free browsers) spawning the generation-long boom of the 1980s and 90s.

Beneath the surface of this innovation-driven boom, however, the real engine of growth was debt and the financialization and globalization of the economy.

But when the wheels fell off that debt-fueled boom in 2000, the U.S. did not create a new engine of wealth: it opted instead for a devilishly insidious simulacrum of wealth: debt which rose at an exponential rate throughout the economy.

Borrowed money and phony financial legerdemain (mortgage-backed securities, derivatives based on the MBS, etc. etc.) from 2000-2007 created what I have termed a "bogus prosperity": no actual new wealth was created, only a brief and doomed bubble of debt-based housing valuations was inflated which followed the classic model set down by the Tulip Craze in Holland hundreds of years ago: insane boom, crushing bust.

We have to revisit the early 1970s for a reality check. In post-industrial America circa 1970, a huge surplus of food was grown by a mere 2% of the workforce. The cornucopia of manufactured goods was produced by about 20% of the workforce (hence the phrase "post-industrial"), and other than essential government services like the Armed Forces, police and the courts, the rest of society's work was either service-oriented paper-pushing relating to affluence (insurance), do-good selfless work (Peace Corps, churches) or leisure-related: entertainment, films, travel, amusement parks, stereos, etc.

This was not all fantasy. A friend of mine supported an entire house of hippies in late-60s Pittsburgh on his union steelworker job, and had plenty of money left to save for his trip to San Francisco. (As I recall, the rent for the big old house was less than $200 per month.) Hippies were the first ardent dumpster-divers/scavengers, driven not by poverty but by the idea that since that our society generated so much waste and surplus, why bother working?

As noted here many times before, the purchasing power of American wage-earners reached a plateau around 1973 and has been declining ever since.

One key point which is usually overlooked when comparing "The Last Christmas in America" circa 1974 and TLCIA circa 2011: the wealth distribution in the U.S. was much flatter then. CEOs of financial institutions did not earn $10 million each; there were no hedge funds with chiefs pulling down $600 million each (yes, that was the average "compensation" for the top ten fund managers at the hedgies' glorious peak), and even minimum wage ($1.60/hour in the late 60s, I know because my wage stub recorded it) bought far more goods (purchasing power) then than minimum wage does now.

Not only was gasoline cheap, but housing was far and away cheaper than it is today. Just about any G.I./Vet could buy a house with his/her V.A. benefits (3% down), and anyone else could scrimp and save for a few years and then buy a house for 2 or 3 times their annual wage at an interest rate around 6%.

Meanwhile, in TLCIA circa 2011, obscene "compensation packages" are defended as "free enterprise." Well, what did we have in 1973? Unfree enterprise? Amidst all the ideologically convenient defenses of heavily skewed "compensation," we have to admit that the dream of affluence combined with leisure was based on the presumption of society's wealth being distributed somewhat evenly, not by a Communist central state but by the "free enterprise" system and modest common-sense government regulation (limited work hours, minimum wage, etc.) which protected employees from the excessive exploitation of the late 19th century and early 20th century Monopoly Capitalists.

That dream seemed at hand in 1970. Now, after "the limits to growth" were mocked by those expecting ever larger oil fields to provide endless abundant cheap oil, we find that Peak Oil was merely put off a generation; there have been no new discoveries of super-massive oil fields since the early 1970s, and the supposedly abundant alternative petroleum sources like shale oil are horrendously costly to exploit, for they require vast quantities of energy (mostly natural gas at the moment) to be consumed to extract the oil.

Now we face a future which might well be called the End of Work for up to a third of the current workforce. Since agriculture employs about 2% of the workforce, industrial/factory production about 11%, essential transportation and essential government each a bit more, we have to ask: in an economy in which 70% of GDP is consumer spending, how many jobs are actually essential? How much actual wealth is being created/produced in the U.S. and sold overseas? Is giving people with Medicare coverage handfuls of costly and often ineffective medications and endless MRI tests actually creating wealth, or it mostly squandering it?

We might also ask: how much of the consumer economy is superfluous if wage-earners shift values and decide saving is more important than consuming? How many malls, storefronts, internet retailers, restaurants, fast-food joints, etc. can a newly-frugal economy support? How many dog-walkers, derivative salespeople, nail shops, carpenters, financial planners, realtors, etc. does an economy need if the FIRE economy (finance, insurance and real estate) is shrinking?

Based on the tremendous size of the service economy, construction, finance and government, I have estimated that 30 million jobs out of the current 139 million-strong workforce are superfluous. Many government positions are essential: police, meat inspectors, rangers, tax collectors, meter maids, etc., but as Mish so thoroughly illustrated in his detailed analysis of the California state budget ($120 billion or so), dozens of State agencies could be eliminated without any visible effect on the economy except to the wage-earners who lost their jobs.

If 20 million jobs disappear (7 million have already vanished since 2008), so do all the taxes those wage-earners paid; if 5 million homes go through foreclosure, the inflated property taxes the owners once paid will disappear, too. Once businesses close, it's not just wages which disappear: all the junk-fees governments levy disappear, too: the business taxes, the licensing fees, the permits, transaction fees, etc.


Does anyone think all these taxes and levies can fall and government employment will be funded by some other source? Yes, the Federal government can borrow apparently limitless sums at low interest rates; but soon, the surplus money which has piled up in exporters' accounts will be gone, and the endless borrowed trillions will actually start costing real money--money that will be diverted from government employment to pay the interest on all that wonderful debt everyone loved when they got a piece of it.

So how does a society deal with the End of Debt-Driven Consumerism, the End of Cheap Oil and the End of Work when it also means The End of Affluence, even for many of those with jobs? How does government deal with declining tax revenues and rising interest rates?

The death throes of the debt-based consumerist lifestyle are already visible beneath the glossy propaganda of "rising revenues this Christmas season." Those revenues were obtained by selling goods at below cost, in the absurd hope that income-strapped, over-indebted consumers would make profitable "impulse buys." As Mish has documented, the "impulse buys" are being returned even before Christmas to the tune of hundreds of millions of dollars.

The Fed is desperately attempting to re-inflate the debt bubble by lowering interest and mortgage rates and buying up all sorts of semi-toxic/impaired debt. What the Fed dreads is the reality we all feel and see: fear of the future due to diminished wealth and insecure incomes. If your assets have fallen in value, you feel poorer because you are poorer. Borrowing more at any interest rate will not make anyone feel wealthier.

People who fear their income may plummet due to layoffs or their hours being cut are not in the euphoric mood to borrow more, and banks which cannot dare to lose more money loaning to people who will default have cut off credit to millions of previously rabid consumers of debt.

Ask yourself this simple question: how much stuff could people buy if they could only spend surplus cash, after all their expenses and debt servicing payments were paid in full?

And let's not forget that much of what is purchased in this consumerist frenzy is needless, superfluous crap. My wife saves the most egregiously gift-buying-frenzy advertising circulars, and one from Bed, Bath & Beyond caught my eye.

There is no difference between this "1001 Best Gifts" from BB&B and a parody of consumerist excess. Hmm, how about an "executive standing valet" rack of wood and plastic for $99.99?

To make this poor-quality contraption, a forest somewhere in a Third-World kleptocracy was cut down and precious, irreplaceable oil was burned shipping the lumber to China and from that factory to the U.S. across 6,000 miles of Pacific Ocean.

We know this spindly piece of garbage will break in a matter of days, weeks or maybe if the owner is especially careful, months; then the legs will break loose of the base, the towel bar will pull out, etc. and the "we cut down a priceless rain forest to make this" piece of human handiwork will be put on the curb where a diesel-burning garbage truck will haul it to the landfill along with all the spoiled food Americans throw out.

The 16-bottle wine cellar/cooler from China (labeled Cuisinart for your consuming pleasure) for $199.99 might come in handy storing something once it's unplugged--but a cardboard box will probably do just as well.

I for one will not mourn the last debt-consumerist Christmas in America. Good riddance to the flaunting of borrowed money and the heedless, desperate purchase of valueless "goods" as gifts for an insolvent nation awash in too much of everything but common sense, integrity, gratitude, accountability and healthy living.

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LouisDega's picture

This is not porn. I cant get a woody

economics1996's picture

This guy always fails to omit the size of the federal, state and local governments have grown from 26% of the GDP in the 50s to 45% today.  He kind of hits it with the 30 million useless government hacks sucking up resources but needs to be up front and center with it.

He also fails to point out the increase in transfer payments from 5% of a workers check in the 60s to almost 16% today.

And the role of inflation after 1971 and Nixon's removal from the Bretton Woods agreement.

I mean taking about bull shit debt levels and leaving out the movement to 100% fiat is a little weird.

I understand where the guy is coming from, but ZH should have me write one of these.  I do better.

youLilQuantFuker's picture

You'll have to join Bloomberg and sneak around to the secret office in the broom closet. Are you OK with that?

economics1996's picture

If I had Bloomberg’s data I would write a novel.

Chuck Walla's picture

I wonder what "Free Enterprise" he sees these days. The one that bought GM and bailed out banks?  Or the one that is attempting to take over health care?

flattrader's picture

CHS is running out of things to write about.

He's recycling (VERY) recent charts he lifts from other websites without links or due credit.

So much for his No Santa Claus Rally call.

Tylers, does he pay you to allow him to post here?

That would at least explain why this nonsense appears on ZH.

perelmanfan's picture

No, CHS is a good guy. A true synthesist, and those are desperately needed and in short supply. It's possible to quibble with anybody who does the Jared Diamond here's-how-the-whole-world-works thing, and in an article format, he can always be accused of leaving something out. But I find the dude invaluable.

Perhaps the only perspective I would grant him would be to ponder Adam Smith's quote about doom prophecies for America: "There is a lot of ruin in a nation." The countervailing trend of 300-million problem-solving brains humming away - however hobbled by junk-culture assaults - is more potent than many, including lots of ZH folks, are willing to credit. I'd like to see CHS discuss this "damping" force.

Cursive's picture


No, it's not "gloom porn," it's a hat tip to the proper functioning of society.  We've created our own financial Tower of Babel.  It's not sustainable.  Best to be prepared for what comes after this stupidity.

Winston Smith 2009's picture

No, it's the end result of 30 years of destroying ones manufacturing base and compensating through the accumulation of massive amounts of debt to preserve a false prosperity.

The bill is now due and there will only be two results.  If all of the right choices are made at every step by bankers and politicians, there will only be a very deep and very long economic recession.  If everything isn't done perfectly, and it won't be, there will be a catastrophic domino effect economic collapse triggered by any one of many possible triggers.

economics1996's picture

To restore the manufacturing base we need;

1.  Flat or fair tax with zero corporate tax.

2.  Energy policy of liaise fair.

3.  One set of environmental regulations for all 50 states.

4.  Tort reform.

5.  A education system that educates (as opposed to indoctrinates).

6.  Stable currency, gold, and silver.

MachoMan's picture

Why do you donkeys keep talking about tort reform...  we've had tort reform since the 70s...  what is it you think will be solved by tort reform?  What is the effect you want to create through tort reform?

PS, there are "due process" ceilings to punitive damage awards...  and many states have implemented statutory ceilings to punitive damages...  although, my state declared ours unconstitutional last week.  [I strongly suspect you would change your tune on the concept if you read the basis for our constitutional adoption of a blanket prohibition on any legislation limiting damage awards...  which was adopted from Pennsylvania's same amendment].

StychoKiller's picture

The best reform would be "Loser-pays," and you know it.

MachoMan's picture

Not at all...  we've made the policy decision that (unlike our father state) we want to hear close cases...  in the pursuit of justice, close calls get a day in court too.  However, for the risk averse, when loser always pays, any close case doesn't have its day in court...

Further, we don't have a pure "loser doesn't pay costs" system anyway...  there are a myriad of generally accepted types of cases (contract for example) in which the loser pays court costs/attorneys fees/etc.

What exactly is your argument?

OneLessZombie's picture

It doesn't take a lot of math to figure out that were the massive increases in .gov spending post TARP to be eliminated from GDP we would probably see a BIG NEGATIVE NUMBER which is, don't say the word, DEflationary.

In essence DEflation is being openly MASKED by .gov deficit spending pretty much everywhere.  And we wonder why the private sector is languishing? 

The private sector is on .gov life support.  Don't be expecting them to pull the plug because then they might have to be accountable for the mountain of debt being piled upon our backs currently, with the only beneficiaries being .corp and .mil

At some point we'll realize we're expendable.

Widowmaker's picture

Shut up and sell -- everything.

silverbullion's picture

... and buy physical gold and silver.

Nothing To See Here's picture

Worst yet, TPTB will do everything to postpone the crash after the GOP nomination process is settled in favor of another clueless, smooth-talking statist. Only after this is done, and when the real crash comes, will the people realize the mistake they made by ignoring Ron Paul and falling for the media propaganda. And on top of the ruins will be a smiling Ben Bernank, in a scene reminiscent of Saddam Hussein in the South Park movie, telling everyone "YOU ARE REALLY FUCKED NOW!".

11b40's picture

Now you tell me......I should have sold my shorts yesterday!  Oh well.  I'll just wait & sell them later ;-)

pine_marten's picture

You can't get shit for yer shit these days.  Sell my eye............

grunk's picture

What about that Christmas tradition of shoppers getting trampled on Black Friday?

I'm going to miss that.

Floordawg's picture

You think the Wal-e-World security cameras had entertaining footage before? Wait until the repercussions of this grand fiasco REALLY start to sink into the masses reality... except this time, they wont be paying customers... PARTY TIME!

And as always, "Walmart level" consumers will be the unfortunate first shoved through the economic meat grinder ahead.

pine_marten's picture

Yeah, the security cam shots of the cops looting with the looters in New Orleans after Katrina was really far out.........

Taint Boil's picture

All is well, we have sausages - life is good

Esso's picture

Well, that's just weird.

Chuck Walla's picture

All is well, we have sausages - life is good


No wonder the evil little mass killer is dead!

Chuck Walla's picture

'scuze me, just a  little gas....

Jason T's picture

need to update charts.. 

NEOSERF's picture

Why would we kids want to just use surplus cash when Daddy Ben and Mommy Pelosi spend 2x their means every day, month, year?

Ralph Spoilsport's picture

All I've seen is a bunch of pissed off people this Christmas season. People freaking out in parking lots, giving people the finger over parking places. Mothers telling whiny kids "If I buy this piece of crap, will you shut the hell up?" Florid-faced middle agers buying 1/2 gallons of Popov vodka and big bags of pork rinds. Really puts you in the mood.

Esso's picture

Criminy, I need to get out more. I'm really missing out.

Teamtc321's picture

No, no your not. I went into wally world a few week's ago to stack more ammo. First time in wally world in over a year, it is no wonder we have such a huge bill coming due. 


LaLiLuLeLo's picture

Solution: Don't go to those places. Malls and department stores are for the instant gratification peeps. The real deals are online.

Shizzmoney's picture

Even minimum wage ($1.60/hour in the late 60s, I know because my wage stub recorded it) bought far more goods (purchasing power) then than minimum wage does now.

This. So this.

It's funny that Gerald Celente predicted that NYC or other big cities would become like Mexico City in the next 3-5 years.  In the 1970s, as documented by the films, "Summer of Sam" and "The Pope of Greenwich Village", New York City WAS a very much like a 2nd World city, where the divide of well-to-do and shit holes were often only a few blocks seperated from each other.

Now with central planning, gentrification, and the fascist police state....this is covered up a bit and more isolated......but once shit hits the fan, the facade will end, the curtains will lift....and what you will see on TV will NOT be pretty.

11b40's picture

As someone who lives in the country, works from his home office, and can't see anything but woods in any direction, I pay pretty close attention when I do venture out to the big cities.  Over the past 35 years, I have traveled to NYC from 2 to 6 times a year for business.

Manhattan was getting downright scary in the 80's.  There seemed to be fewer safe neighborhoods every trip, and as I frequently had responsibility for 4 to 6 female sales reps, safety was a big concern.  It reached the point where I would only book roomsw in the Murray Hill district, and the city was grittier and seedier by the month.

Gradually, that changed, and N.Y. began to blossom.  By the end of the 90's, it had been re-born as a great city, and I felt comfortable walking around at night in most of the areas i frequented.

Fast forward to 2009 & and once again I started to feel the decline.  Like so much of the rest of America, there were empty store fronts; entire blocks becoming more stressed, with for sale signs popping up everywhere.  I understand that CRE values have plummetted.

Third we come. 

Mercury's picture

Maybe the music will get better.

dick cheneys ghost's picture

How long can The Fed protect the big banks?.........

Cranios's picture

Bubbles' endings are notoriously hard to predict, so I'm not sure how he could know that this is the last one.

RSloane's picture

Maybe he sees the Big Needle of Fate approaching the bubble.

NEOSERF's picture

Actually I expect a well known Democratic paleontologist to unearth an astounding set of tablets, probably from the sands of Santa Fe or maybe from a cave in the Rockies...these tablets will without a doubt signify that Jesus was not born just once but 3 times...once on Dec 25th but also in April and August...we will then need to celebrate the holidays THREE times a year, stoking a massive consumer binge that will eliminate most of the debt in this country... 

ebworthen's picture

A critical question not asked enough, thank you.

Where, in a 70% consumption economy, do the productive careers come from to fund the consumption?

It is another suit in our house of cards ponziconomy.

Snakeeyes's picture

And then comes the additional bad news.

1 Unit Housing Starts Actually FELL -11.25% in November


Crispy's picture

Reversion to the mean is a bitch aint it? 


Alcoholic Native American's picture

I just went out and splurged with my EBT card.  Doing my part to help the economy.