http://agonist.org/the_5_fundamental_problems_of_the_us_economyI've been bearish on the economy for the last two years. Every 4-6 months, I revisit my bearishness to see if it is still warranted. It is. Underlying the great and fabulous growth of the "greatest story never told (according the Larry Kudlow) is a mountain of debt at the federal and personal level, stagnating wages a negative national savings rate and a trade deficit that while showing some signs of improvement is still at dangerous levels.
The standard refrain regarding this points is "nothing bad has happened yet. Therefore we shouldn't worry about these things." While it is true that nothing bad has happened, we have to ask ourselves a fundamental question: "Is this the way we want to build and manage the largest economy in the world?"
Debt
When used properly, debt can increase leverage and allow an investor to increase his return. When used poorly, debt is a crutch that hides the basic problems of an economy. Unfortunately, the US is using debt poorly at the federal and household level.
At the federal level we have once again seen an explosion of debt issuance. While the White House is claiming the budget deficit is decreasing, the amount of debt issued for the last 6 years indicates otherwise. According to the Treasury Department, the total debt outstanding on September 30 2001 was $5,807,463,412,200.06. That number was $8,713,570,341,089.42 as of February 12, or an increase of nearly $3 trillion dollars. The amount of interest on that debt is increasing:
2006 $405,872,109,315.83
2005 $352,350,252,507.90
2004 $321,566,323,971.29
2003 $318,148,529,151.51
2002 $332,536,958,599.42
2001 $359,507,635,242.41
Conclusion
So where does this leave the economy? Massively in debt and vulnerable to random events. Now we can bury our heads in the sand or try to claim that "something is fundamentally different with this current situation" that makes standard economic analysis fruitless, or we can start to change the way we conduct business.
But then again, nothing bad has happened yet, so why worry?
oh... til today :)
