Karl Denninger, of The Market Ticker, outlines a clear-cut argument for why promponents of us having hit an economic bottom are not looking at the core statistics in Economic Bottom Calls: Willful Ignorance. Mr. Denninger provides an incredibly insighful view of consumer spending and debt, government debt growth and labor statistics to support his claims that we are nowhere near an economic recovery.
The problem is that we are in this recession because of excessive consumer debt in the first place.
The reservoir of available-but-untapped credit is dry among consumers as a whole; we have, over the previous 20 years, drained the labor participation rate, we have drained equity in homes, we have drained savings and instead consumed far beyond our means.Â Since there is no cushion upon which the consumer may draw, and in fact credit lines are being slashed at a furious rate to comport with diminished earnings power among the consumer, the government’s attempt to “prime the pump” was doomed to failure from the outset.
There is only one way to produce a durable economic recovery that does not involve massive contraction in GDP – we must find a way to boost actual personal incomes dramatically so as to free up additional spending power.Â This means dramatically expanding the labor participation rate, which in turn means bringing jobs home rather than offshoring them.Â In short, we must increase PRODUCTION, not paper-pushing.
Comments: For those who may not have guessed it yet, we live in a consumer driven, credit-based economy. Retail and commercial credit has hit a brick wall and all government efforts to ‘restart’ lending have failed (for the exception of Cash for Clunkers, maybe, but this is temporary and does nothing for long-term production and growth). Without credit, we are toast. Consumer leverage is through the roof and it’s time to pay the bill. Eventually, even the US government will be cut off from its credit line, and then the S will definitely hit the fan.
Kudos to Mr. Denninger for this excellent analysis.