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Why I Have Such A Negative Economic Outlook

12 April 2010 2 Comments

A guest post over at Zero Hedge basically makes my argument that I’ve been trying to make for a couple years now.  The article does an indepth analysis of the average Joe who is struggling to get by in America these days.

The author goes through average income levels and average expenses and concludes that the average Joe is essentially in the red each month.  Click on the link above and read through the analysis if you want the details.  On the whole, we pay too much for things and we don’t make enough money.  The result is a lack of wiggle room or buffer.

The resulting conclusion is that because of this average Joe analysis, there won’ t be a sustainable economic recovery here in the U.S.  Savings are required to fuel the economy over time and we’re just not able to save any money right now with the way household finances are structured right now.  We essentially NEED deflation in order to get household incomes in check with expenses, which of course will kill the recovery.

Let me know if you believe the author of the post is off in any way or if you have a different conclusion than the author.  I encourage your feedback!

2 Comments »

  • Alan S said:

    I agree that this is a concern. What do you think about the economy currently being propped up by the top earners? Take whatever % you want (1%, 5%, 10%). Since the gap between the lowest income and highest income is growing, could the spending of the top earners be overcoming the decrease in spending from the lowest incomes?

  • 20smoney said:

    I tend to look more at the overall spending patterns of every level compared to a few years ago when "times were good" – Think about 2005-2007, we had low unemployment, everyone felt "rich" because home values and stocks were high. The savings rate went negative. You had insane spending at every level. There is just no way we can get back to that level of spending which should force a restructuring.

    One major thing propping up consumption is the fact that so many people are essentially living without paying a mortgage. So many people are sitting in their homes and waiting for a loan mod or simply waiting to get kicked out, and these people suddenly are finding a ton of extra money in their checking accounts since they don't have to pay their mortgage! It's essentially an indirect bailout or boost to consumption. Of course like most things these days, it's not a sound foundation for real growth.