2015: The Last Christmas in America

Guest Post by Charles Hugh Smith
If we define Christmas as consumer spending going up while earnings are going down, 2015 will be the last Christmas in America for a long time to come. In broad brush, Christmas (along with all other consumer spending) has been funded by financialization, i.e. debt and leverage, not by increased earnings.
The primary financial trick that’s propped up the “recovery” for seven years is piling more debt on stagnating incomes. How does this magic work? Lower interest rates.
In a healthy economy, households earn more money (after adjusting for inflation, a.k.a. loss of purchasing power), and the increased earnings enable households to save, spend and borrow more.
In an unhealthy, doomed-to-implode economy, earnings are declining, and central banks enable more borrowing by lowering interest rates to zero and loosening lending standards so anyone who can fog a mirror can buy a new pickup truck with a subprime auto loan.
The problem with financialization is that it eventually runs out of oxygen. As earnings decline, eventually there’s no more income to support more debt. And once debt stops expanding, the economy doesn’t just stagnate, it implodes, because the entire ramshackle con game of financialization requires a steady increase in debt and leverage to keep from crashing.
The trickery of substituting financialization for earned income–the trickery that fueled the last seven years of “recovery”–is exhausted.

The incomes of even the most educated workers are going nowhere, while the earnings of the bottom 90% are sliding:
Wages as a percentage of gross domestic product (GDP) have been declining for decades. Note the diminishing returns on financialization and asset bubbles that always bust: wages blip up in the bubble and then crash to new lows when the bubble bursts:
Look at how debt has soared while GDP has essentially flatlined. This is diminishing returns writ large: we have to pile on ever-increasing mountains of debt just to keep GDP from going negative.
This dependence on debt for “growth” leaves the economy exquisitely sensitive to any decline in debt growth. The slightest drop in debt growth in the Global Financial Meltdown almost collapsed the entire global economy:
The essential fuel of “growth”–credit expansion–is rolling over:
Even the vaunted prop under a soaring stock market, corporate profits, are rolling over as the stronger dollar and stagnating sales pressure profits:
The game of enabling more debt by lowering interest rates and loosening lending standards is coming to an end. Debt is not a sustainable substitute for income, and households are increasingly finding themselves in two camps: those who can no longer afford to borrow and spend, and those who recognize that going in to debt to support spending is a fool’s path to poverty and insolvency.
Say good-bye to Christmas, America, and debt-based spending in general–except, of course, for the federal government, which can always borrow another couple trillion dollars on the backs of our grandchildren.

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Dutchman
Dutchman

What’s amazing is that there are so few of us who see it, acknowledge it. While the HNIC and all the other politicians manage to ignore it.

SpecOpsAlpha
SpecOpsAlpha

Severe wage and price controls, everyone receiving Social Security and food stamps (money will be deposited directly into your bank account), and a much more militarized country — that is our future.

card802
card802

A economist said on the radio this morning that while in years past shrinking Black Friday sales could be blamed on high gas prices, bad winter weather, or a combination of the two, this years bad sales could be blamed on ISIS, or more generally terrorism in the world is concerning Americans so much they can’t buy shit.

card802
card802

Beginning of the end for US$ dominance and the feds ability to print away?

WASHINGTON (MarketWatch) —

Details from the International Monetary Fund’s new special drawing rights basket shows that the euro will see the biggest drop to make way for inclusion of the Chinese yuan. Effective Oct. 1, the new weighting of SDR currencies will be 41.73% for the U.S. dollar, 30.93% for the euro, 10.92% for the renminbi, 8.33% for the Japanese yen and 8.09% for pound sterling. The current basket is 41.9% dollar, 37.4% for the euro, 11.3% for the pound and 9.4% for the yen.

Huck A Chainik

Separation of church and mall. Shopmas been gone a berry, berry long time, mang.

};^D

DRUD
DRUD

Dutchman says: “What’s amazing is that there are so few of us who see it, acknowledge it.”

I think a big part of that is the R vs. D bullshit. It is emotionally powerful and it takes a great deal of mental energy and self-reflection to get past 2-party thinking. You see it all the time even here at TPB. These graphs are great because they span multiple presidencies and Congressional terms. No matter which letter controls which govt function we (the People) get bent over.

Tommy
Tommy

I knew credit made the world go ’round, but had no idea that little blip….that tiny pause (third chart from bottom), was enough to nearly ‘end the world’. Thankfully, Goldman Sachs is here to do God’s work.

Kill Bill
Kill Bill

Its because of the mass hordes of broke ass millenials playing video games in parents basement gnoshing on Cheezy Poofs.

Jim
Jim

Was in Manhattan on Black Friday with relatives. Walked up 5th Avenue from Washington Square park to Grand Central while making side stops along 23rd and 34th Streets. Very few people with shopping bags (read: spending), and 1 or 2 people at most in most stores. The only store that actually had shoppers in it buying was Lord &Taylor where the buyers were almost exclusively foreigners/tourists. People are shopped out. The only businesses that seemed to be busy were the restaurants and the convenience food stores (7 11). This was with tons of people everywhere. And this is in the most prosperous city in the country. Back in suburban Cleveland yesterday, the high end mall (Beachwood Place) was packed while the middle to lower class malls were near empty with teens milling about. Although anecdotal, my inlaw said there is a weird vibe in Manhattan lately, let alone the great interior. Out.

Wip
Wip

So, I’m contemplating acting as a pawn broker for an associate. I’ll lend him $19,000 @20% for 7 months. The collateral is a 69 mustang fastback. Badass car. Custom leather interior, custom rims, lowered, red with ghost flames, 460 crate motor. The guy has over $80,000 in it. Business owes the IRS. A shame really.

Should I do it? Lend him the money?

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