If you think the economy is on the mend, think again. Never mind the upbeat news reports from Ford and the fact that Cisco will hire 2,000 people. Remember that Cisco laid off close to 10 times that number in 2009, not to mention the cuts in pay and other
restructuring efforts. Cisco's CEO is just trying to sound optimistic and ride the wave of profits for a while longer so the well paid executives have time to cash in their options and collect their bonuses.
Let me, once more, repeat the basic dilemma. Over half the American households have zero net worth. They are worth nothing. They are living from paycheck to paycheck and that is all that is keeping them off the street. Never mind that they were probably stupid enough to worry about the deficit, and raise their voices against healthcare reform, so that if they get ill, they will be on the street for sure. They are also getting older like so many Americans and have no retirement benefits either. What that means is that things will get worse, a lot worse, before they get better.
However bad that may sound, widespread poverty alone is not enough to cause an economic crisis. Unless the economy in question is dependent on consumer spending. Unfortunately, two thirds of the US economy is directly related to consumer spending. The real wealth producing jobs and skills have been exported to China, because it was cheaper to do so.
So what do you get when you need consumers to spend and those consumers have no money?
But wait a minute! What about the fabulous stock market rally of 2009?
Here is a very simple explanation for this bizarre phenomenon. Remember that a fairly large group of people made a lot of money in the years prior to the crisis. As a matter of fact, because of the wealth shifting that forms the basis of our economy, these people are extremely well off.
When the crisis hit, they did not want to be seen as indifferent, or out of touch, so they curtailed their spending along with everyone else. They also pulled their remaining money out of investments for fear of losing more. Yes, they did lose, but their losses -unlike those of the rest of America- were paper losses only. You know, the ones that give you tax breaks.
For a while that worked fine and the rich suffered alongside the poor. We won't detail the hardships they endured, which were no doubt heart-wrenchingly terrible, but focus on what came next instead. By about mid-year the rich were tired of suffering so they started looking for ways to put their money to work. They also exhaled and started spending. There is only so much suffering the well-off can partake in before they get tired.
So we got a little rally.
Now consider this. The majority of foreclosures in both residential and commercial real estate are still to come. More people will lose their homes, home prices will fall more and more families will go underwater leading to deteriorating fundamentals -how is that for econo-speak?
Job losses are mounting and even the most optimistic, non-delusional, experts predict things won't get better before year end. Meanwhile Obama has lost his shine, and the Republicans are eager reduce the deficit that was started by the war in Iraq, and increase the tax cuts for the rich. That can only lead to more job losses.
Forget the deficit. If we can't get jobs the deficit will only keep growing. We can't save our way out of this hole as the Republicans seem intent on doing. We have already tightened our belts to no avail.
Without income, there is no solution. And unless someone is willing to spend big time, there won't be jobs to produce the only possible solution: income. See a vicious circle?