This is How an Economy Implodes

Trump’s America is facing unparalleled economic disaster.

By Umair Haque and cross-posted from eand.co.

See that chart above? That’s the American economy, dying. It shows retail sales across the economy — and as you can see, the line plunges off the chart into the abyss. Add that to figures showing 36 million people and counting filing for unemployment in the last six weeks. Just half the US population is now employed. GDP cratering — and expected to fall further.

What’s the picture that’s emerging? Of an economy plunging heading into an historic depression. One that is shaping up to be a Greater Depression.

Let me take a moment to explain.

The retail sales number is especially vital because it confirms a key part of the vicious spiral of depression — the one that we economists hope never to see emerging. First, there’s some kind of shock — natural calamity, a sudden shortage, a banking crisis, or in this case, a pandemic.

Then, mass unemployment leads to less spending leads to mass bankruptcies across businesses leads to…mass unemployment. Only this time, the unemployment is long-term, not just short-term, because waves of business have shuttered their doors.

The economy is now at a permanently lower level of the following things: employment, income, savings, assets, and the things those thriving economic fundamentals underpin, like trust, optimism, happiness, and most crucially, confidence. As people lose confidence, they stop spending, and start saving what little they can. Bang! Depression has now set in. And this is what we are beginning to see emerging in America.

America’s economy is based on consumption like almost no other in the world. About a full 70 to 75% of it — depending how you count — is consumption. That means: people buying things, whether jeans, computers, cars, or food. That number is much lower elsewhere — for example, in France, consumption is only about 50% of the economy. Americans have long enjoyed being the world’s most voracious consumers — and I don’t mean that in a judgmental way, just an analytical one. The benefit of having a world economy designed for you — the American consumer — is that you get to buy more stuff, cheaper than anyone else.

But because America’s economy is so disproportionately based on consumption, it’s long had an Achilles heel, too. It’s especially vulnerable to slowdowns in consumption. That’s why there’s an obsessive focus from Wall St and Washington DC on “growth”, which really means “how much people are buying.” If people stop spending — even by a few percentage points — the whole economy begins to shake. The house of cards can crumble just like that — because consumption is a fickle beast

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2 thoughts on “This is How an Economy Implodes

  1. the author of this article is right in its substance. But has a severe case of Trump Derangement Syndrome and it degrades his argument .

    Like

  2. The chart is a total propaganda tool. A correct, accurate and honest chart would have zero (0) at the bottom of the left side axis. The book How to Lie with Statistics using such an example as this scale manipulation here to show charts are used to deceive readers.

    An article so flimsy and easily discarded by just one reference to the literature of misuse of of stats is not very clever and clearly useless except for any effect from the author’s debased motives, whatever they are.

    Like

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