The Death of Demand – The Post-Consumer Debt Economy
by Charles Hugh Smith
ZeroHedge.com 06/21/2011
Keynesians claim more debt will goose “demand;” they’re wrong. Boosting debt has distorted the economy for 40 years, and the end-game is finally approaching.
Keynesians are constantly demanding more debt be taken on to spark “demand” for more stuff. What if debt-fueled demand is dead, expired of natural causes? If so, then the Keynesians are pushing on a string.
The truth is the U.S. has long been a post-consumer economy. Everybody already had a TV, phone, car, etc. 40 years ago, which is coincidentally when wages began their 40-year stagnation and the nation’s public and private debts began exploding higher as the forces of financialization took over.
In other words, the only way to get people to buy more crap was to give them vast quantities of debt.
Now that debts exceed 350% of the nation’s GDP, we’ve reached the end of the financialization process: we can’t afford any more debt unless the interest rate is near-zero.
The Rest…HERE
It’s as simple as this: the U.S. economy is mature and rapidly losing steam. And economists and politicians must get their collective minds around that fact. This doesn’t mean we are doomed. But it does mean that sustained GDP growth of 3 percent or more is pure folly. Can US GDP grow at 3 percent in a given quarter or even year. Certainly it can. But it will never ever grow at 3 percent – or even 2 percent – for an entire decade.
Let’s review:
Average rates of growth for US Real GDP by decade:
1940s: 5.99%
1950s: 4.17%
1960s: 4.44%
1970s: 3.26%
1980s: 3.05%
1990s: 3.20%
2000s: 1.82%
The rate of US GDP growth peaked in the 1960s! And has been trending down ever since. The minor exception was the 1990s when Personal Consumption Expenditures (PCEs) were driven by a) increased access to goods in the form of mind-numbing retail expansion; and b) consumer individuation – a cultural shift that supported the move toward individually-owned products (my room, my car, my phone, etc.). It was the PCEs on steroids period which drove the slight up-tick in overall Real GDP for the 1990s.
The fact is that the US economy today is a 1% economy. That’s it. Anyone who thinks that US GDP will grow at 2 percent or more for the decade 2010-2019 is delusional. I will wager $1 million with anyone who is willing to bet that the US economy will grow at 2 percent or more for the current decade. It will not.