Is the United States economy due for a correction?

Well it doesn’t look good in terms of both domestic fundamentals and international trade, considering:

1) The lack of U.S. investment (and political will) around green energy — along with a concurrent attempt to return to the rape-and-pillage model of extraction industries — means both that a highly innovating and job-creating sector will find a place to thrive somewhere outside of the U.S., and that the U.S. will lag behind in implementations and thus be subject to unstable resources, unsustainable production, and amplified negative externalities.

2) Nearly all categories of consumer spending are increasingly dependent on personal credit and increasing debt, and consumer debt burdens cannot increase without limit — thus demand will either attenuate in precipitous ways across multiple sectors, or competitive price inelasticity will shave profit margins to growth-choking levels.

3) When you remove some potential short-term variability, it appears that wages and job growth may remain largely stagnant over the longer run. Ironically, any potential “trickle down” to wages from a lower corporate tax rate (though there is no evidence that this will even be the case — see the next bullet) will be offset by trade protections that encourage low-paying jobs to return to the U.S. — jobs with such tremendous downward pressure on wages (from years of sweatshop exploitation and ever-increasing production efficiencies) that they will likely become the targets of automation.

4) Cuts in corporate and higher income tax rates will not stimulate economic growth — this has always been a neoliberal supply-side fantasy that has never borne fruit. Instead, we already see the amplification of a post-2008 trend where companies hoard cash reserves and buy back stock, further enriching owner-shareholders. And both globally and in the U.S., this concentration of wealth in the top <1% only exacerbates income inequality to an astonishing degree…it never “trickles down” to anyone else, but instead gets tucked away in trusts and offshore accounts — at least this is what all of the available data indicates for the past 40 years.

5) Stock market gains have been largely psychological, and are (once again) relying ever-more-heavily upon speculation and speculative instruments that either are not backed by material assets, or by extremely irrational valuations of assets.
Regulatory constraints on financial institutions are on schedule to be relaxed to pre-2008 conditions.
International trade deals are being threatened and/or scuttled by Trumpian protectionism and the “uncertainty effect” of his leadership style.

6) Intellectual capital is being jeopardized by discouraging immigrants from attending U.S. universities, an ongoing mishandling of the student debt crisis in higher ed, and a lack of investment and excellence in K-12 (alas, neither the profit motive nor aggressive performance metrics have made U.S. education any better).

7) The ongoing assault on the ACA and Medicare will almost certainly result in a shrinking healthcare infrastructure and increasing costs, even as demand accelerates with an aging baby-boomer population — and possibly an increase in disease vectors resulting from climate change. The consequence in the short term from any single one of these will be rapidly rising healthcare premiums and huge losses at hospitals that must serve the uninsured. When you combine all of these variables, I think this trend is one of the more explosive “crash inducers.” Will taxpayers be “bailing out” hospitals and insurance companies next…?

8-) As a more controversial prediction, exponential increases in product complexity, combined with ever-more-rapid product lifecycles, are inviting at best a form of consumer exhaustion — and at worst a concerted consumer backlash — in either case further reducing demand and potential economic growth.

9) As another speculation, since the U.S. government is trapped in a deficit spending spiral that will be amplified by the recent tax reforms, this will — given the current administration’s irrational belief in outdated economic models and ending “the nanny state” — likely result in de facto austerity measures similar to those that have decimated other economies. Paul Ryan and his ilk have already broadcast their intention to do just this.

….And these are just a handful of the known and possible factors. There are dozens of others all pointing in the same direction: increased market instability, excessive leveraging, inflated valuation, hampered productivity, flat or falling real wages, precipitous decreases in demand, increasing trade imbalances, and overall economic stagnation. Add to this that the Federal Reserve now has very little room to maneuver in terms of monetary tools, and anyone with a lick of sense can see the writing on the wall.

My 2 cents.


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