US debt bubble at bursting point
For example, the reported US job creation figure for June was 112,000, half that expected, with the estimated figures for April and May being revised downwards.
The US jobs market is merely treading water, with the unemployment rate at 5.6%; however, the Economic Policy Institute (EPI) argues that this figure is really about 7.4%. When the quality of the new jobs is factored in, a grim picture emerges, and this questions the health of the 'recovery.'
For example, a closer examination of the statistics reveals that most of the jobs created so far in the recovery are temporary/part-time and low paid: this is in contrast to the highly-paid, permanent, wealth-creating jobs lost in the recent recession.
Indeed, research from Cornell University shows that the EPI found a 15% decrease in earnings in new jobs in comparison to those lost. All this in an economy where over 25% of the population live below the poverty line, as compared to 9% in Germany, when measured using the same poverty index.
The real problem for the US economy, however, is public and private indebtedness, which stands at $34.6 trillion, growing at 10% per annum.
In contrast, US GDP remains almost flat at $11 trillion. More worryingly, every additional dollar of GDP is being generated by a staggering $8 of debt the ratio was 2.5/1 in the last recovery, while the debt to GDP ratio is the largest in US history. Brian O'Mahony lauds Greenspan's lowering of interest rates as the stimulus for the apparent recovery: the Japanese experience of 12 years of stagnation in the face of zero interest rates lends the lie to that argument. In the US, public and private debt has ballooned on the back of low interest rates.
This is the downside of recent growth in jobs, which is due to a combination of debt-financed government and consumer spending. This, however, is not sustainable, as the alarming rate of US bankruptcies indicates.
The Daily Bankruptcy News shows that consumer debt equals 110% of disposable income, compared with 85% of disposable income 10 years ago, and 65% 20 years ago, while savings have dropped to zero which has contributed to rising bankruptcy rates.
Research at Harvard University shows that large debt overhang and bankruptcy are most affecting the US middle class, which is the consumer engine of the US economy.
Greenspan's legacies are credit, property and asset bubbles of gigantic proportions. In fuelling these bubbles, Greenspan' Federal Reserve Board printed more currency from 2000-2003 than was issued from 1776 to 1980.
Indeed many economists argue that Greenspan's monetary policy during the late 1990s contributed in no small way to the dot-com bubble, while present policies simply defer the day of reckoning. Accordingly, the problems for the US economy only begin if any of these bubbles deflate, as consumers cut back to avoid financial ruin, property values drop and the market responds accordingly. When that happens, Americans might wish they were living in Berlin, rather than Boston.
Tom Butler,
Courtbrack,
Blarney,
Co Cork.
