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Strategies & Market Trends : Paint The Table -- Ignore unavailable to you. Want to Upgrade?

To: AugustWest who wrote (6880)	12/20/2001 11:00:46 AM
From: MulhollandDrive	Read Replies (1) \| Respond to of 23786

I posted this a few months ago and think it bears another read in the current market environment. I think the bad news is that the real disposable income increases for the American worker will have to come from across the board tax reductions and reduced government spending...Based on the headlines I'm reading, it AIN'T gonna happen folks, not only is it "business as usual" it seems that the spending looks like it could spiral out of control as we maintain our "war" footing expenditures and tax inflows (based on economic GROWTH) decline ...It's a long read, but I think worth the time. levy.org As The Implosion Begins . . .?? Prospects and Policies for the U.S. Economy: A Strategic View1 Wynne Godley and Alex Izurieta Jerome Levy Economics Institute, July 2001 (rev. August 2, 2001) As the Implosion Begins . . . ? A Rejoiner to Goldman Sachs's J. Hatzius Strategic Analysis, August 7, 2001 [Download PDF version] 1 Introduction The U.S. economy is probably now in recession,2 and a prolonged period of subnormal growth and rising unemployment is likely unless there is another round of policy changes. A further relaxation of fiscal policy will probably be needed, but if a satisfactory rate of growth is to be sustained, this will have to be complemented by measures that raise U.S. exports relative to imports. Over the past few years, a series of reports emanating from the Levy Institute, see Papadimitriou and Wray (2001, 1998a-b, 1994), Godley (2001b, 2000, 1999a-c; 1995a-c), Wray (2000a-b, 1999, 1998), Godley and Wray (1999), Godley and Martin (1999), Godley and McCarthy (1998), Aschauer (1998), Whalen (1995), D. Levy (1995, 1994), Godley and Milberg (1994), SJ. Levy and D. Levy (1992), has argued that, while the U.S. economy has useful supply-side achievements to its credit, the expansion of aggregate demand had been structured in an unusual and unsustainable way-unsustainable because it relied upon a continuing growth of private spending in excess of disposable income. This, in turn, required a continuing increase in net lending to the private sector, causing a rapid growth in the burden of indebtedness, which could not continue indefinitely. Our conclusion was that at some stage, the growth of net lending to the private sector would go into reverse and that this would drive the economy into recession. We have generally been careful, hitherto, to emphasize that we were looking to a strategic time horizon and that there was no way of telling when the turning point would come. But it has become pretty clear during the last six to nine months that the process of implosion that so concerned us has now begun. The new administration's tax and expenditure plans will help, but are insufficient to reestablish an adequate growth rate. There is a second reason why the expansion, as structured, was unsustainable. The large and growing deficit in the U.S. balance of trade made the economy increasingly dependent on capital inflows, which might dry up at some stage. In addition, the deficits generated a growing negative net foreign asset position that could not be allowed to continue without limit.............