Ace,

Can I first suggest that you post replies such as this either at Stoneleigh's site, or maybe preferably at both? There are more reactions to her work here than at TOD:Canada, and that is simply strange, no matter how you look at it.

I see a lot of appreciative comments for the Round-Up here, in the Drumbeat, but I think it's real obvious that that kind of effort deserves reactions right where it's posted. There is of course a sitemeter that provides info on traffic, but if that remains anonymous, it's not really a booster, I would guess.

Just thought I'd point that out again, for everyone who reads all those articles over there. There is a critical mass somehow that is required to start a true conversation, and Stoneleigh deserves for that to happen, and more. I think.

As for your post: I didn't know you are following financial news, just seen your excellent oil posts so far.

Your question:

does this mean that the US consumer spending will show, at best, no growth for the next seven years?

.... doesn't go far enough yet, I think. All reported growth in the US economy since 1998 is most probably virtual. The first graph you post confirms exactly that. It shows an ever deeper level of debt. And whether it's federal, or personal, or something else, the US has accumulated a huge amount of debt since '98. Hence, any GDP number is bogus. None of us get richer by borrowing.

US GDP growth has been negative for years, and inflation has been way higher than official numbers. Housing prices have more than doubled, while the roofs have started leaking, and the paint is peeling. Getting paid just to live in a home. Yeah, feels good, right?

It's what Joe Bageant aptly calls: living in the hologram.

There has been no growth in the US economy for a long time. But it's like you when you lose your income, and have a neighbor you can go to every day for another$100. You can spend every night. but does anything grow, except for your debt? So does your neighbor give you the $100 every day beacuse he's stupid, or did you sign a paper that says he owns more and more of your property?

Stoneleigh thinks there is an unequaled economic disaster coming our way, of the kind that will make 1929 look like a 5-year-old girl's birthday party in full sunshine, and I think she's right. Housing prices have doubled in the US in 10 years, but that's nothing: Forget subprime.

The amount of leveraged credit, hedge funds, CDO's, has gone up 10-fold. And none of it is real. We are fast on our way to find out what IS real. Misery is. Debt is.

_{PS: the graphs Stoneleigh uses come from the ContraryInvestor, unfortunately a pay site, with some things posted elsewhere. Their strength is twofold: first, they are graphically better than just about anything I've seen, and second, they are unique in that they go back 50-60 years, which makes for great and very convincing trendlines. Just look at the first one, Household Mortgage Debt since 1947, and then tell me you think this time it's all different.}

Meanwhile, nothing but appreciation for you from me. BTB, I had to look twice at your second graph, but it's true: it states "GDP, adjusted for CPI+lies". Priceless.

Thanks Ace - really interesting.

Personally I would be very surprised if consumer spending showed any growth for a very long time because I think we're in for a rerun of the Great Depression (at the very least). We've just lived through the largest credit expansion in history and should now IMO see the largest credit deflation (ie Enron on a very large scale).

I'm not saying that a recession isn't coming or that the housing market won't do some economic damage -- but GDP is partly a measure of what you cannot do for yourself. GDP is also partly a measure of waste and high profit margins. The internet and cell phones have probably saved me several percent of income per year of wasted money (and time). This effect multiplied over millions of consumers may mean that GDP could be "flat" while "consumption" rises.

People are providing more service for themselves, finding the correct products more often, and finding lower margins products due to the internet and cell phones. Economic efficiency could increase and neither GDP nor productivity measures would capture it.

By my way of thinking we have a huge housing surplus in the US, way above and beyond that present unsold inventory.

As gasoline prices go up, people are going to have to abandon the suburbs and relocate closer to jobs or mass transit, shopping, schools, etc. As the incomes of the Formerly Well Off continue to lose pace with inflation in general and exploding energy and food prices in particular, people are going to have to make more drastic lifestyle changes. The elderly are going to have to move in with their children (or vise versa), kids are going to have to delay leaving the nest longer, and many households will expand to include assorted other relatives, friends, or paying lodgers. You'll see a lot more subdividing of houses to create rental units; that rental income will make the difference for a lot of people between keeping and losing their homes.

The bottom line is that America is heading to a much lower level of square feet per person as far as housing is concerned. Lower s.f/person will be less expensive to heat, and thus will be necessary for that reason alone. We are going to have to decline and become a poorer country even under the best possible scenario, there just isn't any other way around it.

What this means is that, with just a little remodeling, we already have about all of the housing that we need, where we need it, with a substantial surplus left over in the low-density suburbubs (where we do not need it). Thus, we hardly need to be building any new houses at all, for a long time to come. We might just as well be taking all that money being spent on new housing, dig a hole, throw it in, and set it on fire, for as much good as it will do us in transitioning to where we need to go.

The Fed (in cooperation with the banking system and the borrowing public) can create new bank reserves (and hence new loans and new money) WITHOUT LIMIT. Much attention is given to short-term interest rates, but these are only the tail of the dog of monetary policy, which is primarily carried out through daily Open Market Operations (OMO) by the Fed. See any economics textbook for how this works, how the Fed creates money out of thin air.

What about the falling dollar against foreign currencies? This is probably a Very Good Thing (VGT) because we run big trade deficits. A cheaper dollar means that our exports become cheaper and imports become more expensive. Thus a falling dollar will eventually tend to cure our trade deficit. Against some currencies, the dollar should fall a great deal, against others not so much. Unfortunately, the Chinese won't let the dollar fall much against the yuan; the Chinese don't want their dollars to depreciate because they hold so many of them.

The U.S. is a huge debtor country. Debtors win when inflation unexpectedly increases. Double digit inflation is even more effective than mild inflation, and if you want to get rid of all those old burdensome debts that are holding down consumers and corporations, why then the way is clear: Just let the hyperinflation roar.

I have stated earlier on TOD that I expect the dollar to one day again be worth exactly the same as a Mexican peso. The Fed will not give in to inflation without a struggle, but I think Peak Oil must necessarily bring much greater inflation to the U.S.--combined with slow or negative economic growth. In other words, we may have the worst of both worlds--a depression with double-digit unemployment combined with escalating double-digit inflation.

Fasten your seat belts, economic blind curves ahead.

And that's my big concern. The US government will no doubt decide at some point to inflate its way out of debt. This isn't an option for Joe Six -- particularly if his wages are flat or (worse) he is out of work.

Do we really know that the average person was wiped out by Weimar Republic hyperinflation?

Hyperinflation today would wipe out the debts of anyone who owes debts at fixed interest rates or at variable rates that have ceilings. So hyperinflation today would pay off tens of millions of mortgages and money owed on new cars.

No kiddin' (sorry ... bad pun)! The design of modern apartments are terrible and ours is no exception. We get by though by not buying a lot of big heavy things (wall units, plasma TVs, big stereo systems). We don't have a lot of stuff. My radio stuff is cramped into the walk-in closet amongst the clothes. The electronics are laptops and one shuttle PC, a super mini stereo, and a little 15" LCD TV. When we buy things size, weight, and where to store the box (seriously) are all considered. The place is pretty roomy now. Sometimes I see my neighbors' places (it's weird the alienating power of apartments), crammed full of big TVs and heavy furniture. Very claustrophobic.

If your bedroom is big enough you could keep your baby in that room for a year or so (you have to get up all the time anyway). When the child is a little bit older perhaps a Murphy or sofabed in the living room. Eventually, it will have to be a two bedroom apartment I guess. Or not. Plenty of folks live in small places, one just has to be creative.

Having said that, we're close to moving anyway ... cities are yucky.