The Oil Drum

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.