Household wealth in the USA
The financial condition of households in the United States has deteriorated over the past 40 years.
There are many reasons:
... Even though there are many positive macroeconomic indicators, wages have flatlined.
... Growth in consumption has been facilitated by increases in consumer debt.
... In addition to consumer debt, there have also been significant increases in the amount of home equity debt.
... In addition to this, student education has been financed using student debt.
... Prior to the financial crisis, the national goal of more home ownership was facilitated by a massive increase in mortgage debt.
All of this resulted in a huge net loss of household wealth.
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Corporate performance
The decline in household wealth was caused by the mismatch between the flatline for wages and the ongoing growth of consumption.
Both of these factors were positive for corporate profit performance.
US GDP growth was supported by consumption that was supported by increase in levels of debt
Companies improved their profit performance by growing their supply chains into low cost countries. China was a major beneficiary of this.
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Trade
Products get traded when there is economic advantage ... otherwise products do not travel.
In the 1970s and into the early 1980s there was massive cost push inflation in the United States because of the increase in oil price increases brought about by the OPEC oil cartel initially in 1973. THe US has an inefficient energy intensive economy and there was little that could be done by the corporate sector other than to pass the costs on to the customers. There was some decline in profit performance at this time, but most of the pain was passed through to the customers.
During the 1980s Japan emerged as a viable supplier for the US market and by the end of the Reagan years there was a lot of talk that the 21st centruy was going to belong to the Japanese.
After this Chinese companies started to become a favored source of products for the US market. Every dollar that China has accumulated has been sent to China in exchange for Chinese product by the American private sector. The American private sector was able to sell these low cost products in the United States at prices that included a good profit ... much more profit than they could earn by trading in products manufactured in the United States.
China has used the dollars sent to China in a very efficient way ... and over a period of just three decades has gone from being a very poor country to one with considerable wealth and a lot of economic flexibility.
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End user buying power
End user buying power in the United States is weak relative to the aggregate wealth of the economy. This has been caused over years by the flatlining of wages which in turn has been caused by the ability of companies to source products from lower cost producers outside the country.
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Location of industry within the USA
There are big differences in business friendliness between different parts of the United States.
This give rise to a 'race to the bottom' in terms of employment and quality of life.
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Accounting for externalities
There is very weak accounting for externalities by the business community.
Whle there is a growing conversation about the issue, a system for reliable numbering does not yet exist. (August 2918)
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Central Bank assets
Total CB Assets -v- GDP
CB Assets -v- GDP