01.04.2012 1

The Economy in 2012: Turbulence Ahead

By Howard Rich — A modest decrease in unemployment and an uptick in holiday shopping have sparked a boost of consumer confidence in America; however, the fundamentals of the U.S. economy remain weak heading into 2012.  In addition to the lengthening shadow cast by the European debt crisis (a result of the same entitlement excesses in which our government is currently engaged), several key indicators point to turbulence ahead — even as forecasters are touting 2-3 percent growth.

For starters the nation’s battered housing market still hasn’t hit bottom, keeping the construction industry (and the manufacturers that supply it) largely on the sidelines. And while America’s gross domestic product finally showed signs of life in the latter part of 2011 much of this “growth” comes in the form of additional spending on necessary expenditures like food and energy.

Meanwhile America is still not producing enough new jobs to keep pace with its expanding population — which is why such a big chunk of the recent unemployment drop can be attributed to workers abandoning their search for gainful employment.

Dreary numbers released last month by the U.S. Census Bureau revealed that 146.4 million people (or 48 percent of the country) are currently classified as either poor or low income — an increase of 4 million from the peak of the recession.

Of course this deteriorating standard of living — driven by lackluster economic growth and inflationary pressure — isn’t exclusively a recessionary phenomenon.

According to investment analyst Porter Stansberry, America’s “real per-capita wealth peaked in the late 1960s” and has been declining in fits and starts ever since. The latest slide actually began well before the housing bubble burst — back when U.S. Rep. Barney Frank was busy assuring the public that a rash of government-mandated politically-correct loans wasn’t going to flood the market with toxic assets.

Supporting Stansberry’s contention is new inflation-adjusted data published last month by Moody’s Analytics showing that America’s median net worth dropped by 8 percent from 2004-2010.

These numbers highlight the unambiguous failure of centralized planning — and the futility of our welfare state experimentation. Government’s costly “War on Poverty” has succeeded only in empowering its stated enemy. These numbers also show that the soaring deficits associated with George W. Bush’s “compassionate conservatism” and Barack Obama’s “hope and change” have only succeeded in plunging the nation even deeper into its economic malaise.

Stansberry’s assessment of this continuing descent is especially compelling because it converts government data into “real-world purchasing power” — which shows just how hard it has become for Americans to keep their heads above water.

“Our data are based on the real purchasing power of the currency, not the nominal numbers, which are completely meaningless in the real world,” Stansberry explains.

Compounding the problem is the rapid accumulation of household debt. From 1975 to 2007, household debt in America has more than quadrupled — even after adjusting for inflation. From 2000 to 2007 alone household debt more than doubled — climbing to nearly $14 trillion in 2008.  By comparison consumer prices increased by just 20 percent over that same period.

This figure has declined in recent years — to 114 percent of annual after-tax income from its 2007 peak of 130 percent — but the main driver of that reduction has been mortgage defaults.

Obviously these frightening totals don’t include the $134,528 in public debt that the federal government has saddled on each individual taxpayer. In fact, public debt has dramatically outpaced household debt over the last few decades — climbing from an inflation-adjusted $2 trillion in 1970 to more than $15.1 trillion today.

That’s a 636.7 percent increase.

America may experience modest economic growth in 2012, but there’s no guarantee that this expansion will be much more than the result of more spending on things people have to purchase in order to survive. Meanwhile politicians’ preference for “high time” spending will continue to add explosive power to a ticking time bomb of debt and unfunded liabilities.

The author is chairman of Americans for Limited Government.

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