Thursday, April 10, 2008

The boom that wasn't

Karl Denninger just gets better - it's one of the advantages of sticking to your theme and endlessly rehearsing your arguments, as politicians know.

There is only one way that home prices where they are, even today, are sustainable - that would be for wages to rise by 30% across the board. That, of course, isn't going to happen, and if it did it wouldn't do you a bit of good because prices would simply rise to the same degree, leaving us exactly where we are now!..

There never was a "boom" in earnings power for middle America. The median family income - including all quintiles - was actually down $500 or so over the last eight years. If you exclude the top quintile it was down materially - 5% or so. And that's in nominal, not constant, dollars...

We're now going to adjust spending and investment levels to incomes because there is no way for us to adjust incomes to spending levels! The big productivity gains that came from computerization are finished, and we've already offshored nearly all of our manufacturing, so there's no more "cheap labor improvement" available either...

If we can keep the government from screwing things up with more vote-buying attempts we'll get through the other end of this, although people's standards of living will change. You won't be able to afford to milk your house for the second Lexus and six plasma TVs, but is this really such a disaster? I think not.

Read the whole thing in all its beauty here.

Next task, when I have the time, is to see what happened to the middle quintiles in the UK.


Semaj Mahgih said...

The income/unit price gap is widening on major items like houses and cars. With some commodities - no - admittedly but our big purchases - it's bad.

yoyomo said...

With globalization it is inevitible that western societies become a little poorer as formerly Third World economies industrialize and begin to compete for increasingly scarce resources. Several years ago I read an article in one of Lyndon LaRouche's publications (can't vouch for veracity but I've personally never come across false info the few times I've read his writing) that cited a previously classified strategy paper written by Henry Kissinger in the early 70's that stressed the need to prevent industrialization in the 3world to prevent them from competing for raw materials that the west wanted to aquire at low prices.
That effort has now failed and unless there is a major war to destroy the manufacturing capacity of Asia and Latin America the west will have a rude awakening as its citizens must adjust to sharply lower living standards. If energy supplies crash precipitously there will be mass die-offs around the globe. Without abundent energy and petro-chemicals food production will collapse. This credit crunch is coming at a most inconvenient juncture along the peak oil curve.


Thanks, Y, I keep hoping it won't get apocalyptic.