The Bush Boom Was a Complete Bust

Either we're in a recession or we're about to start one. Either way, the latest expansion is over. While there may be some question about when it happened (the expansion, that is) the reality is it was the least impressive expansion since WWII. Below I will explain why.

Before I move forward, let me address specifically any readers who still think the last expansion was "the Greatest Story Never Told." I am going to use facts to demonstrate why the latest expansion was terrible. If you don't like the facts please feel free to present you own facts. In fact, please do so. But please only use facts from reliable sources. Reliable sources would be the government agencies that collect and present this data. To sit at this table, you must bring data (properly adjusted for inflation) that is from sources used by all economists not from sources whose credibility is non-existent.

That being said (and I can't believe I even have to address this issue).

Let's start with the consumer side of the equation. First , job growth during this expansion is the weakest of any recovery since WWII. (This information comes from the National Bureau of Economic Research and the Bureau of Labor Statistics)

As a result, real median household income (income adjusted for inflation) is now lower than it was at the beginning of this expansion (this is the first time this has happened in 40 years) (This information comes from the Census Bureau).

So -- where did the money for consumer spending come from? Part of it came from savings. Here is a chart from the St. Louis Federal Reserve of U.S. national savings. Notice this number has been decreasing for the last 25 years and is currently hovering around 0%.

Debt is the real source of funds for this expansion (this information comes from the Federal Reserve's Flow of Funds report and the Bureau of Economic Analysis).

As a result of this increased debt load, a larger portion of consumer's income (which has been stagnant for this expansion) is going to debt payments:

So looking at the consumer we see the following picture emerge.

1.) Job growth was the weakest of any post WWII recovery.

2.) Real median income actually dropped for the duration of this expansion.

3.) To sustain consumption, consumers went on a mammoth debt acquisition binge, so that now

4.) Debt payments are as high as they have ever been on a percentage of disposable income basis.

So after 7 years of economic expansion we have lower incomes and more debt.

However, the consumer isn't the only person who ran up a ton of debt.

The Bush White House has again run up the national credit card. Here is a list of total debt outstanding at the end of the government's fiscal year:

09/30/2007 $9,007,653,372,262.48
09/30/2006 $8,506,973,899,215.23
09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/30/2001 $5,807,463,412,200.06
09/30/2000 $5,674,178,209,886.86

The current debt outstanding is $9,437,425,175,221.31

Notice that since 2002 the Federal Government has issue over $500 billion of net new debt per year. And yet, we have continually been told the budget deficit is getting better. Let's ask a fundamental question: if you continually spent less than you made, would you have to borrow money?

As the US has become more reliant on debt financing it has also become more reliant on foreign governments for its financing. Here is a chart from the St. Louis Federal Reserve of the total U.S. debt held for foreign investors:

In short, growth at the national level is dependent on the issuance of debt. And we are now reliant on foreigners for an increasing percentage of our growth. A former Federal Reserve Chairman (Paul Volcker) explains why this is a bad development:

More recently, we've become more dependent on foreign central banks, particularly in China and Japan and elsewhere in East Asia.

It's all quite comfortable for us. We fill our shops and our garages with goods from abroad, and the competition has been a powerful restraint on our internal prices. It's surely helped keep interest rates exceptionally low despite our vanishing savings and rapid growth.

And it's comfortable for our trading partners and for those supplying the capital. Some, such as China, depend heavily on our expanding domestic markets. And for the most part, the central banks of the emerging world have been willing to hold more and more dollars, which are, after all, the closest thing the world has to a truly international currency.

The difficulty is that this seemingly comfortable pattern can't go on indefinitely. I don't know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.

Finally, the US trade deficit has exploded. Here is a chart of from the St. Louis Federal Reserve:

The St. Louis Reserve published a report in late 2006 that showed how important oil was to this figure. This indicates how important energy independence would really help with the trade deficit.

So let's sum up.

1.) The weakest job growth since WWII led to a declining median family income.

2.) In order to keep spending the U.S. consumer continued to save less and borrow more.

3.) At the national level, the U.S. government has issued over $500 billion dollars of net new debt per year since 2002. This has led to an increased reliance on foreign investors to finance our way of life.

4.) The trade deficit has continued to expand, although oil is responsible for a fair amount of that increase.

5.) In short, the U.S. continues to consume more than it produces.

At some point, we will have to pay the bill.

This is the end result of the "Bush boom" or "the greatest story never told."

If the story was so great, we wouldn't need people to remind us of how good it is.

Comments

[desmirl]

The disaster of Bush's economic policies will negatively influence America's prosperity for the next couiple of decades. Today's children have a rather bleak future, in which they will do LESS well than their parents. How's that for a Bush legacy?

[Clinton]

Today's children should look to migrate to other countries where they will have a better chance to make a decent life for themselves.

[Bud111]

Our Economy: We Shouldn't Just Blame Bush:

Reagan and Bush have to take the majority of the blame for our economic meltdown; however, remember that Bill Clinton got to leave office before his blunders began to slowly poison our economy and our democracy.
1. NAFTA is responsible for the loss of thousands upon thousands of jobs.
2. The Telecommunications Act allowed the Media to slant the news and sell us an unnecessary and therefore immoral war.
3. The Gramm-Leach-Blilet Act led us directly into our sub-prime housing mess.

[Herrington]

Well I hate to break your data rule right off the bat Hale, but seems I have to do so. The problem is the CPI is the official figure available to track inflation, and it is wrong by half. Just a quick glance at your first graph of real meadian income from 1967 -2006 begs for an observation from the street. Using the McDonalds Hamburger Index data sets, a family in 1967 could buy 368,470 hamburgers a year. In 2006, a family could buy 47,000 hamburgers. And from the Chevy Index data sets, an 1967 family could buy 14.7 Chevy Impalas while the 2006 family could buy 1.88.

If politicians will not admit to declining standards of living, it is all the more important for the public to understand the picture, so that they can take actions on their own, perhaps join a union.

On a further political note, I observe that the trade deficit began to really accelerate during the Clinton "free trade" moves. Ross Perot said it best "giant suckin' sound".

[Herrington]

Oops, I should have had a cup or two first. Hales graph is in 2006 dollars. In 1967 dollars the median income was about $8000. So thats 80000 hamburgers and 3.2 cars.

Don't mind me, I was at the 2nd tier WA democratic caucus yesterday and appear to have suffered brain damage.

[Clinton]

It seems as though the public is long past being irrelevant, what they understand doesn't matter because they can't do anything about it in any case.

[philistine]

"To sit at this table, you must bring data (properly adjusted for inflation) that is from sources used by all economists not from sources whose credibility is non-existant."

Aw, Bonddad, don't make the economic Pollyannas' cognitive dissonance kick in. Life in the bubble is so nice for them.

This so-called expansion has been nothing but economic transfer of wealth disguised as growth. It has been neoliberal smoke and mirrors. Strauss and his minions will form a new circle of Dante's Hell, along with their political equivalent, the neocons. They took the money and ran (offshore somewhere--Caymans or Isle of Man, China, or suchlike). Meanwhile, our "good Germans" here in the U.S. have enabled them. We will be decades getting over this--assuming that we ever can.

[Clinton]

Pehaps we're headed back to the 19th century as a country. Lots of poverty.

[MajorKong]

That's been the goal of people like Grover Norquist for some time. They would like to not only roll back the New Deal, they want to take things back to before the Progressive Era of the early 1900s (Teddy Roosevelt).

[usna73]

The markets will soon reflect this more literally. Watch for the Dow to go to 10,700 and the S&P to about 1220. This will be a rough estimate to where the markets were when Bush took office.

If one takes (real) inflation into consideration, this has been an ugly 8 years for the average investor, just as it has been in so many ways for all of us under the Bush regime.

The pillage and plunder of this crony capitalism cast of characters has been a disgrace.

[BillZBubb]

It seems like, adjusted for inflation, the markets are currently where they were when Bush took office. Moving to the levels you suggest would significantly lower, adjusted for inflation. Not that it won't happen, but the flat markets already do reflect the poor economic performance under Bush and the Republicans.

[joebhed]

Another great post. Thanks.
I'm sorry that I might lack the credentials required to make a personal observation.
I am betting all takers on a nickel bet for below 10,000 before this is up.
And with 2-1 odds, I go to 9,000.
If anybody wants to hedge my deriivatives on this portfolio, please send a card.
Sorry, no unfunded swap exposure on this venture.

[biwee]

Your post is valid and timely. The S&P 500 peaked at about 1527 in early 2000. It was not until the fall of 2007 that the S&P chugged back into the mid-1500 range. Now, it is dancing around in the mid-1300 range. BUT, when the effects of inflation over the past 8 years are factored in, as you say, "an ugly 8 years". Small investors and savers (check CD rates today.....you can get about half of taxes and inflation) have been seriously damaged by Boooooosh economics.

[Clinton]

And it will continue.

[bogananda666]

It was Ronald Reagoon who convinced Americans that debt is prosperity and is still believed. He was the greatest con man in world history. He convinced Americans that the Nicaraguan Sandinista army was going to march across Mexico, invade Texas and capture Wash., DC, a good idea. He also convinced America that 42 Cuban in Granada were a threat to the world, apparently on the assumption they were gong to invade Florida by row boats and invade the US forcing the U.S. into fighting a war on two fronts, the 42 Cuban and the Sandinista army . Reagoon was believed. He was a con man while Bush is thug.

[vippy]

I would bet it is not the man called president, it is the people who back this and work in the
background, Cheney comes to mind, the oil corporations, etc.