The game of enabling more debt by lowering interest rates and
loosening lending standards is coming to an end.
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:
