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The Dwindling US Economy

The Dwindling US Economy thumbnail

The announcement today (April 29) of a barely positive GDP first quarter 2015 growth rate of 0.2 percent (two-tenths of one percent) is an intentional exaggeration.

Today’s GDP report is the “advance estimate.” There will be two revisions, with the first occurring in one month on May 29.

Although the “consensus estimate,” which is Wall Street’s estimate, declined dramatically over the past month, the consensus estimate was for 1.0 percent.

The BEA’s advance estimate bears the burden of impact on financial markets even though it is the least reliable estimate. Subsequent revisions receive much less attention. Because of its market impact, the advance estimate is fudged by the Bureau of Economic Affairs (BEA) in order not to upset financial markets keyed to the consensus forecast.

All indications are that the first quarter experienced negative GDP growth, that is, a decline from the previous quarter. However, if BEA reported a negative GDP when the financial markets were relying on positive real growth, the government’s Plunge Protection Team might be unable to prevent a substantial market decline.

Therefore, the BEA in its advance estimate reported a barely positive result that kept GDP out of negative territory. This gives financial markets a month to undergo an orderly reduction prior to the first and then second revisions of the advance estimate, or simply to forget the poor performance altogether until the second quarter advance estimate.

Maintaining stability and not shocking financial markets is now ingrained in US economic reporting. No government statistical department wants to be blamed for crashing the financial markets. So bad news leaks in slowly if at all.

Indications are that the second quarter 2015 will also have negative GDP growth, that is, a further decline. As John Williams (shadowstats.com) is likely correct that there has been no recovery from the prior recession, just bottom bouncing with stock and bond markets driven by the Fed’s outpouring of liquidity, the first half of 2015 will signal a second downturn in the US economy which is collapsing as a result of jobs offshoring and a deregulated financial system.

The real economic outlook, which will emerge from BEA in a month or two, should be obvious to anyone who had the introductory course to macroeconomics. The economy depends on consumer spending. Consumers have two ways of spending more. One way is from rising incomes. The other way is from rising consumer debt.

With the advent of jobs offshoring, real median family incomes ceased to rise. The ability of consumers to substitute larger debt burdens for the missing growth in their real incomes was used up by Federal Reserve chairman Alan Greenspan’s policy of expanding consumer debt in order to fill in for the missing growth in consumer income. Today consumer debt levels are too high for consumers to incur more debt. The only element of consumer debt showing an increase is student loans.

The offshored jobs were not replaced with the promised “New Economy” jobs. No one has seen any sign of the mythical New Economy jobs. The “New Economy” is the transformation of the once powerful US economy into a third world labor force where new jobs exist only in domestic non-tradable services (services that cannot be exported) such as retail clerks, hospital orderlies, waitresses, and bartenders. As there are not enough of these jobs to go around, the labor force participation rate has dropped sharply.

The United States is an economic basket case. Washington has given away the US economy to Asian countries with lower labor costs. The owners and mangers of capital have benefitted, but the vast bulk of Americans have suffered. As capital’s owners and managers are not sufficiently numerous to drive the economy with their expenditures, the fabled American economy is no more.

What will bring the US economy out of the second leg of the downturn? If massive federal budget deficits and zero interest rates could not correct the first leg of the downturn, what does fiscal and monetary policy have left in its arsenal?

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.

by Paul Craig Roberts | Infowars



12 Comments on "The Dwindling US Economy"

  1. Davy on Fri, 1st May 2015 7:22 am 

    I don’t like Roberts. He gives me the feeling of a smart version of the Makster. This is something the Makster would say “transformation of the once powerful US economy into a third world labor force where new jobs exist only in domestic non-tradable services (services that cannot be exported) such as retail clerks, hospital orderlies, waitresses, and bartenders” While true it does not acknowledging the US is strong in all areas services, manufacturing, and agriculture. There are still allot of good jobs but they are in decline. The US is a continent sized country with a variety of work force from third world to first world. Why are Asian’s coming to America?

    The US is obviously in decline on all fronts culture, military, economic, and political. It is no longer a post USSR empire. That was pissed away by the neocons when the first bombs were dropped in Iraq. The neocons pissed away the economy. Now the fascist tendencies of the political industrial elite in DC & NY are pissing what remains.

    There is a great deal of effort being made to prop the system up for the few by the few. Not all are going to play by those rules. This is a confidence game of liquidity. Wall Streeters and increasingly the political elite of DC are psychopathic opportunists bent on making it good from their stints in politics. Business people are going into politics to open up paths latter in business.

    These psychopathic 1%er people will jump ship as needed to save themselves. They are banded together now because they feel the Fed has their back. If things destabilize per their outlooks “Kattie bar the door” they will be the first rats to scamper out of the sinking ship by virtue of inside information.

    The whole system has become rigged by a few for a few. The economic policies are wealth transfer policies that cannibalize the public for private gain. Establishment polices are extending and pretending the debt and unfunded liabilities thinking they can be massaged away over time. The shale bubble is the latest casualty of bubble deflation. The ME is a disaster and Ukraine a dud of a US policy play.

    This article was a typical US critique but the reality is the US is doing relatively better than many other areas. The health of the global system is on the verge of a descent. Asia is stalling, Europe is broke, Japan is broke, the the BRICS a joke.

    Everywhere you look we have disequilibrium masqueraded by MSM as BAUtopian hopium of progress and technological innovation. We are constantly give optimism and doses of good news in bogus techno articles. We are being told we will export energy soon. Much of the good news is just fantasy or distortions. I would call them lies because we are in a reality based world that is being lied about. The trend is obvious if you are looking at the forest and the trees.

    If the US goes into recession it will likely drag the rest of the world down. There is no longer any tools to reflate the global economy. Debt defaults will be too great to extend and pretend away. The second and third largest economies China & Japan are faltering. Europe is in the worst deflations unable to support its high living standards. IOW we appear to be in a visible bumpy descent. This is visible to reality seeking people. Normal people are bombarded by everything is ok and all will get better.

    This likely recession will have the knock on effect of depressing further commodities most notably oil. That will signal the end of growth because the oil complex will likely be in a demand and supply destruction phase within a depletion and negative affordability phase. IOW oil will not save the day. The economy will not save oil. We cannot save ourselves from ourselves and we are our worst enemies.

    It is my hope we have a crisis that forces a rebalance of consumption by ending bad attitudes and lifestyles. I hope this can happen without the social fabric exploding from food insecurity and fuel shortages but it is likely we will see mass demonstrations. The public will not know why they are pissed.

    That public explosion will usher in the end of enlightened democracy if we even have that anymore and the advent of fascism of industry, political, and military in the last ditch effort by the global elite to save their wealth and privilege. Any consumption rebalance will force population rebalance next. How bad that is will be up to us our own enemies.

  2. eugene on Fri, 1st May 2015 8:01 am 

    I think we “pissed it away” long before Iraq. My read is we set out to be an empire from the get go which only accelerated and then really took off after WWII. We are the greatest, the smartest, the best and the most wonderful thing to ever, ever hit the planet. We romped and stomped over everything in our path. We blame outsourcing but, actually, the problem was our own greed/arrogance run wild.

    Now we’re just a loud mouth wildly waving his/her gun around. Not harmless so others still have to be careful but they aren’t terrified anymore. And by the way, we were never a “democracy”. We were, and are, a republic. And if you think we were an enlightened “democracy” you need to learn some history. But if you have a need to still feel “the greatest”, have at it.

  3. Baptised on Fri, 1st May 2015 9:43 am 

    Thank You Eugene so much. Stating something that has bothered & confused me for years. To hear people preach and war for democracy, when USA is and has always been a republic.

  4. BC on Fri, 1st May 2015 10:28 am 

    We ceased being a republic not long after Washington was sworn in. TJ’s Lousiana Purchase and Lewis and Clark’s expedition, Manifest Destiny, and TR’s soft walking with a big stick ensured policies that lead to the US becoming the successor to British Empire in the late 19th and early 20th centuries, i.e., Anglo-American empire.

    Then the NY and London banksters, railroads, and industrialists effectively created a corporate-state structure in the 1880s and a private central bank in 1913 (successor to the Bank of England).

    The US is now a militarist-imperialist rentier corporate-state based on “no representation without taxation” of the top 1-10%, with the best gov’t all the money of the top 0.001-1% can buy.

  5. Davy on Fri, 1st May 2015 11:22 am 

    BC said “The US is now a militarist-imperialist rentier corporate-state based on “no representation without taxation” of the top 1-10%, with the best gov’t all the money of the top 0.001-1% can buy.” This rentier group is both domestic and global. Actually the US is no longer in charge as one might think. It has been sucked into multi-lateral relationship economic and command and control that has left the US nothing more than a vassal of a global system as other powers are.

    The global system is about the movement of liquidity globally to income potentials. Confidence is liquidity so all nation states must avoid confidence destabilizing actions IOW answer to investors. Global financial markets, comparative advantages, economies of scale, and JIT production and distribution rule. They rule because all locals have been delocalized and are dependent on the global.

    All nations are vassals to a global system. No nation can decouple and survive alone. Any effort by any nation or nations will fail. An example of this is Russia and the BRICS. They can make a change on the fringes but the fundamental foundation of BAU cannot be changed without destroying BAU. Destroying BAU will collapse globalism and create mass death.

    We are in a straitjacket of dependence with insanity and hatred of that dependence. All nations want their cake and eat it. Globalism is great but only if I benefits them. The commons are being destroyed because there is no accountability. The accountability is only to dependence. This is a sick system and evil but it is what it is. Systems go through cycles. Nature runs its course why would humans be any different.

  6. Perk Earl on Fri, 1st May 2015 1:35 pm 

    “However, if BEA reported a negative GDP when the financial markets were relying on positive real growth, the government’s Plunge Protection Team might be unable to prevent a substantial market decline.

    Therefore, the BEA in its advance estimate reported a barely positive result that kept GDP out of negative territory.”

    It’s also important to note that if there are two consecutive quarters of negative GDP, that defines a recession. So by fudging a number here and there to make sure there is minimal positive growth, the economy buys an extra quarter to muster real positive growth while avoiding the much feared in financial circles, R word (recession).

  7. JuanP on Fri, 1st May 2015 4:10 pm 

    I have no doubt that the US economy is dwindling, but, at least for now, things are still easier here than in most other places. I can still easily earn in one week more money than most people in Uruguay make in a month, and life in Uruguay is more expensive than in Miami, too. That is why I am still here. The USA is declining much faster than Uruguay, though, and I don’t know how much longer this will last. This may be because Uruguay’s economy has been deteriorating for at least 7 decades by now, since the end of WWII.

  8. James on Fri, 1st May 2015 4:43 pm 

    I have always wondered where the corporations and businesses think their U.S. customers will get the money needed to purchase their products? If the U.S. worker doesn’t have a decent FULLTIME job, how can they afford to buy anything?

  9. American Idiot on Fri, 1st May 2015 9:55 pm 

    Shrinking economy is related to shrinking energy. Net energy loss equals net income loss. Enomy will continue to shrink as we lose more energy.

    Listen to the latest podcast at peak posperity with John Michael Greer.

  10. Perk Earl on Fri, 1st May 2015 10:53 pm 

    AI, tried a google search and found source but not link to one with JMG. Got a link?

  11. apneaman on Fri, 1st May 2015 11:25 pm 

    http://www.peakprosperity.com/podcast/92330/john-michael-greer-god-technological-progress-may-well-dead

    I liked this one it’s more gooder.

    John Michael Greer – After Progress

    John Michael Greer discusses his latest book After Progress: Reason and Religion at the End of the Industrial Age. Progress is not just a goal in the West – it’s a religion. Most people believe in its inherent value as enthusiastically and uncritically as medieval peasants believed in heaven and hell. Our faith in progress drives the popular insistence that peak oil and climate change don’t actually matter. After all, our lab-coated high priests will surely bring forth yet another miracle to save us all. Unfortunately, progress as we’ve known it has been entirely dependent on the breakneck exploitation of half a billion years of stored sunlight in the form of fossil fuels.

    https://www.youtube.com/watch?v=pzDy01f5CxM

  12. Perk Earl on Sat, 2nd May 2015 2:38 am 

    “Progress is not just a goal in the West – it’s a religion. Most people believe in its inherent value as enthusiastically and uncritically as medieval peasants believed in heaven and hell. Our faith in progress drives the popular insistence that peak oil and climate change don’t actually matter.”

    I like that, Ap. Sure, just think right past all the mounting problems. Tech will shine the way…Great stuff.

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