2015: The Last Christmas in America

If we define Christmas as consumer spending going up while earnings are going down, 2015 will be the last Christmas in America for a long time to come. In broad brush, Christmas (along with all other consumer spending) has been funded by financialization, i.e. debt and leverage, not by increased earnings.

The primary financial trick that’s propped up the “recovery” for seven years is piling more debt on stagnating incomes. How does this magic work? Lower interest rates.

In a healthy economy, households earn more money (after adjusting for inflation, a.k.a. loss of purchasing power), and the increased earnings enable households to save, spend and borrow more.

In an unhealthy, doomed-to-implode economy, earnings are declining, and central banks enable more borrowing by lowering interest rates to zero and loosening lending standards so anyone who can fog a mirror can buy a new pickup truck with a subprime auto loan.

The problem with financialization is that it eventually runs out of oxygen. As earnings decline, eventually there’s no more income to support more debt. And once debt stops expanding, the economy doesn’t just stagnate, it implodes, because the entire ramshackle con game of financialization requires a steady increase in debt and leverage to keep from crashing.

The trickery of substituting financialization for earned income–the trickery that fueled the last seven years of “recovery”–is exhausted.

The incomes of even the most educated workers are going nowhere, while the earnings of the bottom 90% are sliding:

Wages as a percentage of gross domestic product (GDP) have been declining for decades. Note the diminishing returns on financialization and asset bubbles that always bust: wages blip up in the bubble and then crash to new lows when the bubble bursts:

Look at how debt has soared while GDP has essentially flatlined. This is diminishing returns writ large: we have to pile on ever-increasing mountains of debt just to keep GDP from going negative.

This dependence on debt for “growth” leaves the economy exquisitely sensitive to any decline in debt growth. The slightest drop in debt growth in the Global Financial Meltdown almost collapsed the entire global economy:

The essential fuel of “growth”–credit expansion–is rolling over:

Even the vaunted prop under a soaring stock market, corporate profits, are rolling over as the stronger dollar and stagnating sales pressure profits:

The game of enabling more debt by lowering interest rates and loosening lending standards is coming to an end. Debt is not a sustainable substitute for income, and households are increasingly finding themselves in two camps: those who can no longer afford to borrow and spend, and those who recognize that going in to debt to support spending is a fool’s path to poverty and insolvency.

Say good-bye to Christmas, America, and debt-based spending in general–except, of course, for the federal government, which can always borrow another couple trillion dollars on the backs of our grandchildren.

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  • November 30, 2015 The Lull Before The Storm—–An Ideal Chance To Exit the Casino, Part 1

    Last night’s Asian action brought another warning that the global deflation cycle is accelerating. Iron ore broke below $40 per ton for the first time since the central banks kicked off the world’s credit based growth binge two decades ago; it’s now down 40% this year and 80% from its 2011-212 peak.


    • mulga mumblebrain

      That Stockman regurgitates the climate destabilisation denialist imbecilities of Booker of the UK ‘Telegraph’ rather reduces his overall credibility.

      • What do you have to counter his belief, and article?

        • mulga mumblebrain

          Science, rationality, logic and observation. Apart from that-not much.

  • jadan

    Lately CH Smith reminds me of my seat belt experience. Every time I slip behind the wheel, the damned beep starts, and it beeps and beeps, and then it goes to a crescendo of hysterical warning of dire consequences ahead. He’s been drinking kool aid with Michael Snyder. In fear & loathing they contemplate the Baltic Dry Shipping Index and all the jagged lines trending straight down to hell. Christmas is forever, relatively speaking, but the Fed is certainly doomed. The debt-based money the private monetary system provides is pure poison. Of course this absurd system of monetary slavery will collapse. Doesn’t take the gift of prophecy to see that. It has been foretold that when a white haired minion of Jewish descent becomes the Fed figurehead, the End is Nigh. But it is also a beginning, a new era featuring public money issued by the government of the people, at no cost to future generations. Wallow in your grim premonitions, but keep in mind that the end is also a beginning…

    • mulga mumblebrain

      No. This time the end is The End. Tamam Shud. Universal Silence. For Homo destructans, and most higher animals, much of the plant kingdom etc. Regeneration will take millions of years.

      • jadan

        OMG. Seriously? There are innumerable probable realities. Anything that can happen will happen, but there is no end…

        • mulga mumblebrain

          The End of humanity is now nearly certain. Closing one’s eyes doesn’t help.