“You know, a lot of people seem to have a ‘real problem’ that stands above all the other problems, or is the root of all the others.”
I understand what you are saying Ben, but I will counter. Did all our economic ills begin in 2003 with the housing boom?
Or, perhaps were there problems pre-2003. We the junk bond bubble, the S&L collapse, the tech bubble and tech wreck problems? If so, was there something going on that caused them?
Did consumer debt explosion begin in 2003 with the housing bubble? Total household debt in the USA in 1980 was $1.4T. 2003 it was $9.5T. Inflation adjustment for CPI is 77.8->181.7 = 2.3. Population adjustment is 227 million -> 294 million = 1.3.
So, sustainable rate of household debt growth based on population and inflation would have had debt go from $1.4T in 1980 to $1.4Tx2.3×1.3=$4.2. That is an increase of $2.4T. Actual increase based on actual dept of $9.5T = $8.1T.
Therefore, consumer debt was increasing at 3.4x the sustainable rate from 1980 to 2003, pre-housing bubble.
You get only slightly smaller numbers if you look at business debt.
The debt explosion was not the result of the housing bubble. The housing bubble was not the first in our long series of asset price bubbles.
What happend in the 1970s that caused us to turn to debt to maintain our standard of living?
I’ve looked very hard, and the one thing I can come up with is that for the first time in our history, we became a net import nation.
To maintain our standard of living in the face of low global wages that sucked away jobs and created a massive leak in teh economy know as trade deficits, we turned to debt.
For 40 years we relied on ever more debt issued at ever lower rates and with ever looser lending stantards.
Eventually that solution will result in too much debt even at near 0% interest rates, a point that interest rates can’t be pushed lower, and a situation where lending standard are so lose that fraud is the norm instead of the exception and we have no choice but to tighten lending standards. I think we reached that point in 2006.
I think the end game of the debt based economy is at hand, as soon as our massive federal deficits result in loss of confidence and higher treasury interest rates, our federal government will no longer be able to be the borrower of last resort….
We will have to stop living on debt, meaning we have to stop the tread deficits, meaning we have to deal with the reality that our wages are not competative in the face of global labor competition.
Maybe I still don’t have the real “root cause”, but I think I’m a lot closer than “we turned away from God” which I think you only presented as a straw man anyway.
Defeating “turning away from God” as the potential root cause does not defeat other possible root causes like low global wages, job offshoring, trade deficits, and using massive debt growth to maintain our standard of living in the face of all of the above.
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