David Frum's article sadly, but accurately, describes the condition of our country today. It should be read by every American, in the hopes of instilling urgency in their response to their own responsibilities, and what they should demand of their government.
What he did not explain was how we got here, and why things won't return to the glory days of consumption and employment any time soon.
Consumer spending represents 70% of the economy, and consumers have lost over 40% of their net worth in the past few years.The followings forms of stimulus have worked in the past and could possibly work in the future. If consumer debt could double as it did from 1980 to 2007, unemployment would drop markedly. If government debt could triple as it did from 1980 to 2012, unemployment would drop markedly. If mortgage rates could decline by 85% as they did from 1980 to 2012, unemployment would drop markedly. If consumers could borrow with no need for income verification as they did from 2005 through 2007, unemployment would drop markedly.
Sadly, consumers can't double their debt again. The government can't triple its debt again. The generational decline of mortgage rates will not happen again, and consumers can hardly qualify for new credit, given borrowing restrictions and the lack of collateral. Not only can't these kinds of stimulus happen again, but in many cases, they are reversing course and will have the opposite effect on consumers and consumption.
Why won't our elected officials tell the American people the truth about the headwinds facing our economy, instead of expounding on silly issues like fighting to the death over a 3% reduction in the deficit by raising taxes on the rich.
http://www.thedailybeast.com/newsweek/2012/08/05/david-frum-on-high-anxiety-america.html
What he did not explain was how we got here, and why things won't return to the glory days of consumption and employment any time soon.
Consumer spending represents 70% of the economy, and consumers have lost over 40% of their net worth in the past few years.The followings forms of stimulus have worked in the past and could possibly work in the future. If consumer debt could double as it did from 1980 to 2007, unemployment would drop markedly. If government debt could triple as it did from 1980 to 2012, unemployment would drop markedly. If mortgage rates could decline by 85% as they did from 1980 to 2012, unemployment would drop markedly. If consumers could borrow with no need for income verification as they did from 2005 through 2007, unemployment would drop markedly.
Sadly, consumers can't double their debt again. The government can't triple its debt again. The generational decline of mortgage rates will not happen again, and consumers can hardly qualify for new credit, given borrowing restrictions and the lack of collateral. Not only can't these kinds of stimulus happen again, but in many cases, they are reversing course and will have the opposite effect on consumers and consumption.
Why won't our elected officials tell the American people the truth about the headwinds facing our economy, instead of expounding on silly issues like fighting to the death over a 3% reduction in the deficit by raising taxes on the rich.
http://www.thedailybeast.com/newsweek/2012/08/05/david-frum-on-high-anxiety-america.html