Economy Driven By Consuming Our Accumulated Wealth


By historical standards, our present economy is being driven by selling the “family jewels” rather than by measured consumption commensurate with actual income. In recent years, income growth after inflation has been at or near zero percent. Contributions to economic growth have been largely limited to two factors: (1) rapid increases in asset prices (public equities during the 1990s and housing equity in the first part of the 2000s) and (2) inviting cheap overseas imports into the U.S. produced at a fraction of the amount it would cost us to produce them here. We are now extremely vulnerable as our industrial infrastructure has almost shut down (our cost to produce is uncompetitive) or sold out.

We can no longer produce enough for ourselves to maintain our present strength and living standards. We have become dangerously dependent on imports.

If we were spending what we were actually making, U.S. GDP would likely be stagnant or receding. The personal savings rate has, for the first time in decades, turned negative. That means that we are consuming every dollar we make, plus spending trillions of dollars of accumulated wealth. There is no longer any cushion.

At present, this economic “joyride” has claimed the lower and middle classes as victims while leaving the upper class with a false sense of prosperity. Those without significant assets are not able to participate because their consumption and savings are largely composed of income from stagnating wages. They are condemned to live paycheck to paycheck. Cheap imports, offshoring and outsourcing, foreign insourcing, and the liquidation of U.S. industry are placing tremendous pressure on wages. Goods-producing industries (typically the highest paying industries on average) are shrinking rapidly.

Ironically at this point, the standard of living of the lower income population is being sustained by the same low-cost imports at discount retailers that have destroyed their opportunity for economic advancement. We have lost our leverage.

History tells us that no country can continue indefinitely to sell its wealth, borrow from other countries, and sentence its citizens to hopeless servitude. Pressure on the U.S. dollar due to decades of outrageous foreign borrowing is being temporarily offset by the rising U.S. interest rates (rising interest rates tend to buoy the value of a country’s currency for a time). Furthermore, these rate increases are a huge cost to the U.S. – especially to those who do not benefit from the increased yield on their investments because they have no investment!

The U.S. government is now forced to raise rates or accept a lower-valued dollar and, consequently, more expensive imports. The only other vehicles available to the government include taxation, subsidies, and perhaps default. Any of these options would cost all classes of this country.

Former Federal Reserve and Treasury officials, Nobel Prize-winning economists, preeminent investors, and industry leaders have widely acknowledged these imbalances for many years. Those in power who must face the music are looking for every reason to push the difficult decisions to the “next guy.” However, there is no hope of recovery without a plan – and there can be no plan until there is at least an acknowledgment that the problem exists by those who are in power! Demand leaders who will address these issues now even though it may be too late.

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