Friday, July 9, 2010

Consumption will continue to fall

As I have pointed out in the past, Consumption reached unsustainable percentages of GDP over the past 30 years as median wages stagnated, the rich manipulated the tax system and corporate compensation to their advantage, and consumers financed consumption spending out of illusory bubble profits on their houses, or simply out of increased debt.  Note that wages and salaries began their decline in 1971.while the federal government led the way toward greater indebtedness for all.  The conversion of billions of dollars of compensation into “capital gains” hides the trend toward increasing top-drawer incomes when looking at the NIPA numbers for wages and accrued salaries.  See Saez for what the tax returns showed.


Investment is at record postwar lows as a percentage of GDP, and as everyone knows, Government spending (not pictured) is rising as a share of GDP. 

Inevitably, Consumption must fall—unless there is a dramatic increase in wage and salary income (that would also fuel derived domestic investment demand, presumably).  But will (domestic) Investment step up to the plate to fuel aggregate demand without Consumption being supported by incomes?  Not likely, when there are so many solvent, rapidly growing countries in the world to invest in without the specter of the IRS hanging over them.  See Global Guerillas for an argument that the US is becoming a "hollow state,”  and The Global Political Awakening and the New World Order for a high-toned prediction that seems to say that the New World Order will be toast pretty soon.  The prescient Gerald Celente seems to think we’ll be hearing a lot of “power to the people” soon.

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