April 08, 2006

Understanding The Six Major Economic Problems We Face

If you don't read Bonddad (who writes on the MyDD - Direct Democracy blog) for economic news and analysis of what is happening to us on the economic front, you are missing some really important insights, as well as facts and figures.

A recent piece is entitled Corporations Have Biggest Share of Income in 40 Years where he informs us that:

U.S. corporate profits have increased 21.3% in the past year and now account for the largest share of national income in 40 years, the Commerce Department said Thursday.

Another is entitled Savings Crisis Continues in which he prefaces his remarks with:

The US Savings crisis continues. Today the Bureau of Economic Analysis reported personal income figures for February 2006. The figure came in at -$43 billion, or -.5% of total personal income. This is the 11th month in a row this figure has been negative. In addition, yesterday the Bureau of Economic Analysis reported revised 4th quarter GDP which includes personal income figures. The savings figure for the 4th quarter of 2005 was -15.8 billion, or -.2% of personal income. The implications of this situation are very important for the economy as a whole.

Every now and then he throws in a zinger like this, entitled Send the Right Wing Noise Machine to Iraq:

For anyone who is a member of the Right Wing Noise machine -- Hannity, Rush, O'Reilly, Hewitt, Laura Ingram the folks at Powerline etc... (you know who you are)...
If you don't like the news from Iraq, go over there yourselves and find the happy stories you claim exist. Until you do that you have no business saying there are good stories over there that aren't being reported. PS Have a nice day.

But one of his longer pieces is well worth taking the time to read in full. It is concise, easily readable, and understandable. It is called The 6 Major Problems of the Current US Economy. Here are the six major problems in a nutshell:

1. Weak Job Growth
2. Low Wages
3. Skyrocketing Consumer Debt
4. Poor Savings Rate
5. Soaring National Debt
6. Widening Trade Deficit

Here's his conclusion:

The US economy's foundations are weak. Current job growth is poor by historical standards. This has lead to weak wage growth, forcing consumers to fund their purchases with a massive increase in debt acquisition. Because consumers have spent beyond their means, they have little savings to help them through economically difficult times. In addition, their increased use of debt makes them more susceptible to insolvency should they experience a financial problem.

At the national level, the federal government has returned to deficit spending, decreasing its effectiveness in the event of a recession. And finally, the trade deficit which is financed by foreign capital inflows could correct violently, spiking US interest rates, slowing the US economy and creating a huge financial problem.

These are foundational economic issues which the current expansion has only made worse.

While I have no prediction when or if a painful correction will occur, should the US experience an economic shock we are ill prepared to deal with it. In fact, the current US economic foundations may make an economic shock much worse.

Bonddad writes about economic issues in lucid, accessible prose, using just enough facts and figures not to overwhelm and obfuscate. I recommend him highly.

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