Is the Global Economy Slowly Falling Apart?

For Americans, the economy is likely to remain sluggish for several years, but the long-term outlook isn't nearly as bad as the pessimists say

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It’s conventional wisdom that the U.S. economy is steadily recovering from the recession, even if progress is slow and disappointing. But there’s also a widespread sense that long-term economic prospects are deteriorating all around the world. Young people can’t find jobs. Budgets keep being cut in both the public and the private sectors. And the projected increase in debt over the next decade figures to be a huge burden for the most highly developed economies. Political systems seem unable to cope with problems that ought to be fairly easy to solve, or at least contain. As the recent crisis in Cyprus demonstrates, a minor dislocation can become a threat to the entire global financial system overnight.

The U.S. is deeply troubled too. Deficits remain enormous, and the checks and balances of the political system have turned into a logjam. In a new book, David Stockman, President Ronald Reagan’s budget director, chronicles the relentless downward spiral of America’s political and financial systems. He concludes: “The future is bleak … When the latest bubble pops, there will be nothing to stop the collapse.”

This view may be extreme, but there’s hard evidence to substantiate the idea that the global economy is becoming more rickety. Although the developed world today is considerably richer overall than it was when Stockman worked in the Reagan Administration, creditworthiness has been steadily declining. The global supply of AAA-rated government bonds has shrunk by more than 60% since the financial crisis began. And while dozens of big U.S. corporations had top bond ratings 30 years ago, today that group has dwindled to four: Automatic Data Processing, Exxon Mobil, Johnson & Johnson and Microsoft.

How seriously should we take these bellwethers? Although there are real problems that need to be solved, the long-term picture doesn’t look entirely bleak. Four major trends will determine global economy stability in the long run:

(MORE: Marx’s Revenge: How Class Struggle Is Shaping the World)

Demographics
Populations develop bulges because of changing birthrates. In the most simplistic terms, a bulge of high-spirited young people correlates with disorder and higher crime rates. A bulge of middle-aged people in their peak-earnings years encourages economic growth with relatively low inflation. And a bulge of old people who are no longer working but have substantial health care needs is a huge drag on an economy. Countries like Japan and much of Europe already have a bulge of old people, and the U.S. is joining that group. Other countries, like China, have a bulge of middle-aged citizens but a birth rate that has been declining for some time. They stand to enjoy another decade or two of prosperity before their growth rates begin to slow down. Countries with lots of young people will actually see their growth improve as their populations age.

The Credit Cycle
The amount of debt in leading economies rises and falls over time, creating boom-and-bust cycles in credit. The Federal Reserve’s easy-money policies promoted the high-tech stock boom in the U.S., until the bubble burst in 1999. After a brief credit contraction, real estate boomed in many countries until 2007, helped by excessive lending in the euro zone and another round of monetary expansion in the U.S. Since the recession ended, however, there have been attempts all around the world to reduce debt or at least slow its growth. Periods of major debt reduction — or “deleveraging,” as economists call it — restrain economic growth and can last five to seven years. The current deleveraging has gone on for four years, so it could be several more years before the economy enjoys really robust growth again.

Technology Waves
Important inventions — from the steam engine to the automobile to the computer — create bursts of above-average economic growth, although they sometimes take a decade or longer to have their full effect. The Internet “backbone” was created in 1987, but the stock boom it launched took a while to get going and didn’t peak until 12 years later. Currently, there are a number of new technologies that could have a major economic impact on the overall economy. The one that’s already under way is enhanced oil-and-gas production, which could fundamentally alter U.S. dependence on expensive foreign oil.

(MORE: Can China Escape the Middle-Income Trap?)

Government Spending
The euro zone and many other countries are now facing some form of austerity. So is the U.S. But the problem isn’t as terrible as it sounds. At last year’s rate, the federal government would take on $11 trillion of debt over the coming decade. With average growth, however, the U.S. economy could handle another $6 trillion of debt, so the real shortfall is $5 trillion. The tax hikes at the end of last year are projected to raise $600 billion over a decade, and the sequester is scheduled to save $1.2 trillion. More normal economic growth would eliminate the so-called output gap — the difference between what the economy can produce and what it is producing. And that would reduce the annual deficit by $900 billion. That all adds up to $2.7 trillion, and the deficit that remains is $2.3 trillion. As a benchmark, that amount is nearly twice the size of the sequester. Bringing the budget under control would be painful, but not impossible — and there’s a decade in which to do it.

What do these four trends add up to? The last of the baby boomers won’t reach retirement for another 16 years, so the economy is facing a demographic headwind. And the need for further deleveraging is also likely to hold back growth for a while. The same is true for many other countries. On the more positive side, America’s budget problems are fixable — and not so terrible when viewed in a long-term global context. Finally, technological breakthroughs that can’t be predicted could give the economy a lift — but at the very least, America’s energy outlook is far brighter than anyone would have imagined 10 years ago.

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There’s always the possibility of external shocks that would knock the U.S. economy off track. But based on the trends that can be evaluated now, it looks as though a sluggish recovery will continue for several years, and that the outlook could well improve after that. The overall picture may not be particularly upbeat, but the worst appears to be behind us. Certainly, the relentless decline foreseen by Stockman and other pessimists seems unsubstantiated by what we can know now.

36 comments
signdesignr233
signdesignr233 like.author.displayName 1 Like

I don't buy it for a minute.


If by "sluggish recovery" they mean that the elite will have to go down to buying 3 Ferraris per month from ten, then maybe. I see small business closing by the bulk in my area, while prices are skyrocketing. I have a tiny sign shop and even medium-sized companies are paying way late after my invoices are due.

 I don't see how any actual recovery is possible until we put a large segment of our governing body on trial and in jail. 

treecare
treecare

I will come back to this point an other day. Its 23.13 UK time and I have long day tomorrow.

zardoz911
zardoz911

The basic operating system of Government /Global banking is now accounting fraud. They are just printing money with nothing of value to back it up. I believe this is due to failing energy reserves. The so called oil and gas boom is a fraud. They can't increase energy production enough to generate the additional surplus wealth needed to cover the aggregate interest due all around the world. Government services and the entitlements everyone has come to expect of a civilized world are being destroyed. What remains are games of musical chairs, Ponzi schemes, frauds, swindles, stonewalls, ruses, ploys, scams, dodges, bluffs, subterfuges, interventions, pretenses and other modes of evading or disguising reality. ....welcome to global economic collapse.

andersonruth3
andersonruth3

You all need to read "The Tragedy of the Commons" to understand where we are heading.

JohannesSuriyaBhakdi
JohannesSuriyaBhakdi like.author.displayName 1 Like

The future is a function of the human mind. Whoever says the future is bleak has a bleak mind. We have to stop playing analysts and understand that this economy is not someone else, but us. We cannot predict the future, we can only build it. Stop complaining about the gridlock in Washington - go there and solve it. Stop complaining about all kinds of ridiculous economic indicators (omg, job growth is down! - well, start a company and do something about it), and kick-start innovation. Stop complaining about the US, the most innovative country on earth, and help her become even more entrepreneurial. 

Economics is not a science, it's a function of our attitudes, beliefs and actions. 

treecare
treecare

@JohannesSuriyaBhakdi

I am not shore, which planet you live on. Its not Earth. Almost all items the USA supposedly invented, were in fact collaborated with other countries, bought out the invention, then closed down the companies where they came from. Very clever Asset strippers. As for being happy, now that is a function of the mind. Some of the most happiest people I have ever met, are the once that possess the lest, they often live very simple lives to. These people are also more in-tune with there surroundings. They are not absorbed by their smart phones, ipads, Twitter, Facebook or Stocks. I don't even think for one minute they know what the terms mean.

JohannesSuriyaBhakdi
JohannesSuriyaBhakdi

@treecare @JohannesSuriyaBhakdi I live on earth, but I have nothing against taking vacations on Mars once Elon makes it possible. We can debate whether the US stole all inventions and resources from everyone all day, but as a matter of fact, there are more disruptive entrepreneurs here than anywhere else. Not because American's are superior - many entrepreneurs are foreigners - but because we have the freedom here to pursue what we believe in. Pursuit means growth, and growth is not limited. The beautiful thing is that we live in a free world - everyone can have their own opinions, but the ones who are right get rewarded and improve their ability to shape the world. The growth skepticists destroy their countries, and then the guys who generate growth have to take them over (look at Europe). 

I welcome a critical view, always, and think all of us have to learn to deal with innovation in productive ways. But that cannot stop us from innovating, and growing. 

andersonruth3
andersonruth3 like.author.displayName 1 Like

@JohannesSuriyaBhakdi I agree with you in general; we all need to lose the "victim mentality". OTOH, I'm not sure that "Whoever says the future is bleak has a bleak mind." is true 100% of the time.



jjjjmonkey
jjjjmonkey

@JohannesSuriyaBhakdi Hilarious comment.  It really had me laughing.  

In my case, the future looks wonderful for a number of reasons, but I am definitely in the minority.  You need to understand more about what makes people happy and why there are impediments to a continual rising level of expectations.  It just might not be sustainable.

JohannesSuriyaBhakdi
JohannesSuriyaBhakdi

@jjjjmonkey @JohannesSuriyaBhakdi The human mind is designed around the concept of progress. And progress means growth in value over time. I think it's extremely dangerous to remove the idea of growth. We have to understand that economic growth doesn't mean that we have to deplete our planet's natural resources - anything that undermines growth in the long term is not good for growth (obviously). There are limitless resources in the universe, we just have to invent some more stuff to get them, and create the next meta-layers of economic value creation. All this requires more pioneers, and the least we need is growth skepticism. It's the sickness that destroys Europe right now. inmho. 

familyhurts
familyhurts

Thank you for this article - I really appreciate the topic and the openness in which the subject is addressed.

As we know the very essence and prerequisite of capitalism is to produce profit, which means it requires constant growth, which in a shrinking economy like ours is manifested in rapidly increasing debt.

In accordance with the capitalist game, eventually this debt will need to be retired through repeated multi-$billion bailouts and crises - through taking away the retirement funds, savings, etc, and/or real estates from the citizens all over the world. This has been the tendency in the recent years - under the unregulated political and economical global processes - and there is no reason to believe that this tendency would change by itself.
If this process would continue, eventually a few people will claim ownership over the Western countries and eventually over the whole world, which in essence would mark the beginning of a new feudalism. This has been the very conclusion of leading social scientists, whose works I have incorporated into my analysis.:
The end of capitalism: new feudalism via a global-scale foreclosure?
http://familyhurts.wordpress.com/2013/03/27/the-end-of-capitalism-2-3-new-feudalism-via-a-global-scale-foreclosure/

This is why the urgent necessity to indeed stop the process of globalisation, to redraw the borders of the national states and re-establish democratically managed economical units.

Another aspect of globalisation that we may want to consider: do we want to live in a world where the demand for labour would be defined on a global basis and have we ever thought it through what that means in practice: families and couples will be torn apart, personal lives will be destroyed, and the radically atomised world will be even more atomised. It would also mean we would need to learn all languages of the world to remain economically viable. How plausible is that, and even if so, how "efficient" (to throw in the holy E-word)?

Wouldn't you agree that the aim should be happiness and a stable life, not a constant global rat-race? At the current state of technology, we could all enjoy the fruit of our amazing amount and quantity of work, we could find a way to make it all better for all of us, slow down and live a little. Like any rational thinking being would do. Instead, a few above our heads command us to speed up the race. For what purpose? We should stop for a moment and ask what is the ultimate value of our life, how we want to live, why do we "have to" work more and more instead of less and less? To work more and more simply because the value of production is taken away from us and reinvested into another lands where the exploit-rate therefore the profit is higher, so that all the predatory profit could end up in the private pocket of a few?

If we could become again the the masters of our own fate we could freely decide on above as well: how much we want to work for ourselves how much to reinvest and how much to rest, rather than leaving the answers to these questions to those who claim that they have the right to "think" for us, while preparing a new feudalism on this planet.

In addition to the above, the ace-argument against globalisation is this: those who studied history and politics would agree that "global democracy" is an oxymoron. Thinking in terms of global politics/economics equals subscribing to a future governed by a dictatorial regime. 

I summarised a possible way out the crisis and out of the globalisation that is ever deepening the crisis it:
 "The only way out of the crisis: a realisable short-term alternative to the dreaded M-word"
http://familyhurts.wordpress.com/2013/03/28/the-dreaded-m-word-a-ghost-theory-is-haunting-the-present-2/

JimDandyWriter
JimDandyWriter

And to think that in the year 2000 the US delivered a 300 billion dollar surplus...

George286
George286

I think we are just looking at what happens when manufacturing both becomes more automated (requiring fewer workers) and the manufacturing production of the European-American-Eastern Asian is leaving for less-developed countries, where entire factories can be exported and run by people at a tenth the wage.  Agriculture requires capital more than labor, now only a few percent of the population can provide enough food for the rest. The services that must be performed here are becoming more competitive and less remunerative.  Even intellectual services are being exported, call your bank or computer support services and speak to someone in Mumbai.  Our financial institutions took great advantage of this because it mattered little to them, the financial sector is a now a huge part of our economy but only remunerative for a few.  They managed to convince the electorate that it was wrong to tax their personal fortunes.  All the massive borrowing over the past 25 years was just way to maintain standards in the face of this reality.

The wealth then of what had been a sixth of the population of earth is inexorably spreading out all over the planet, mostly to Asia and there is no way to stop it (even if we wanted to).  Do the math, the populations of China or India dwarf that of the West. I don't know whether this is good or bad, but by action of the Internet and the World Trade Agreement we have effectively removed the economic borders.  Much like France and the UK were once the most prosperous and preeminent world powers, the West is seeing a long-term change. 

antonmarq
antonmarq

Not rocket science as long as politicians dictate prosperity instead of the people. We need leadership, visionary leaders who understand the untapped strength and knowledge of America and other parts of the world. War is passe, the next generation is space and the expansion of the human race into the stars, not into hell.  

sasori7
sasori7 like.author.displayName 1 Like

This article fails to mention outsourcing as a serious issue to, primarily, English speaking nations.  It also fails to mention that a growing percentage of those outsourced are outsourcing themselves by leaving their own country in order to find work elsewhere.  Unfortunately, these 'rats fleeing the ship' find it far more difficult to flee than their jobs did.  Jobs have the ability to leave their country in less than an hour.  For the victim, just the bureaucracy of leaving the country and getting the right to work elsewhere takes months.

The real title, and focus, of this article should have been: Is The Global Economy Eroding Your Livelihood?

CharlesBoyer
CharlesBoyer

@sasori7 Couple that with the lesser effect of in-sourcing jobs through H1B and other programs designed to bring in high-skills workers at far lower rates than the resident employment pool and you have a recipe for a downward spiraling standard of living.  Also, this effects more than the English-speaking nations -- Japan, for example, has lost a good number of manufacturing jobs for the very same reasons they've left here.

NickyGrahams1
NickyGrahams1

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mac.mcrae
mac.mcrae

my god these comments are depressing

ibtlius
ibtlius

If the overwhelming greed of the top 1% (esp finance corps) is kept in check by shutting down government-corp revolving doors, we wouldnt have to go through an inevitable global economic decline.

Jamison_Kenney
Jamison_Kenney

If the US abolishes the Federal Reserve, the debt goes with it. Yes, a global depression comes with it, but the longer we wait, the worse the depression will be. Regardless, a global depression is inevitable.

mccarty42
mccarty42

Too many nations are stifling their own economic growth with punitive regulations and brutal bureaucratic resistance to change.  At the same time these very nations are pulling out more and more of their GDP to feed these  damaging dinosaur bureaucracies.  There can be only one result: collapse.   

George286
George286

@mccarty42 Or the financial system ran a giant Ponzi scheme that collapsed in 2007 and now we are deeply in debt because of it.  Had those "punitive regulations" been in place then we would not be in the hole we're in now.

manapp99
manapp99

We are one bubble (or maybe a couple) from either boom or bust. The status quo is a slower death spiral but the trend overall is clearly down. 

sasori7
sasori7

@manapp99 and... what's that next bubble?  I don't think there is much soap left in the bottle, since there is very little fostering of talent anymore, particularly in the tech industry.

fatman51
fatman51 like.author.displayName like.author.displayName like.author.displayName 3 Like

What is falling apart is globalization. Globalization destabilized advanced economies through loss of wages to cheap labor and explosion of debt. It is destabilizing developing economies through inequality, environmental devastation and emergence of permanently impoverished proletariat in large numbers. The world will revert to local solutions, many of which will be strongly undemocratic.

acidburn
acidburn

Communism is reviving,this is what the capitalist sytem brought to us:forests are being wiped out,water is being polluted,the sky is no longer blue,and humans are sick mentally and physically!!whom to blame?I think all boils down to the Greed and the hankering for hegemony between the great nations!!

manapp99
manapp99

@fatman51 Globalization is income redistribution on world wide scale and is responsible for lifting millions worldwide out of poverty. That is why it is confusing that liberals are the ones railing against outsourcing. It is if they are saying they want to help the poor by redistributing funds from the wealthy but only the American poor. Screwing the poor of the rest of the world. Seem awfully small minded of them.  

larissa_j
larissa_j

@manapp99 @fatman51 Not really. There are very few people in the United States that haven't been impacted by outsourcing in one way or another whether it be having lost a job or having a family member lose a job. What you see as being small minded? I see as having a personal stake in getting help for people they know.

Also, nice but failed attempt at trolling. This is not the redistribution of wealth on a global scale. 

hummingbird
hummingbird

Here in the U.S. many middle class jobs have been replaced with low income jobs. It's a dire situation unless something major happens. I see some poor or middle class people still having more than one child and I have to wonder if they don't see how desperate the time is. No worker has job security anymore so you can't feel confident about being able to provide for your family.

manapp99
manapp99

@hummingbird Way back in the 60's and 70's we used to say that it was madness to bring kids into this unstable world. 

melonheadx13
melonheadx13

@manapp99 @hummingbird i think it's more a question of limits to growth and future allocation of finite resources.  we may have to deal with a situation in which there aren't or can't be enough jobs for everyone unless  wages are allowed to free fall and leave even more people below poverty level.  it also seems to me  that everyone should have an ownership interests in all our country's natural resources so that corporations pursue more than just profit.  don't we have a right to clean water and air as well as a say in how to protect those rights?  shouldn't we share the wealth of our energy resources, mineral rights, timberland and so forth?

i believe the clasic capitalist model no longer works as it should when almost all the wealth of the nation goes to the small numbers of the rich.

andersonruth3
andersonruth3

@melonheadx13 @manapp99 @hummingbird I would suggest that "the small numbers of the rich" think that capitalism is working just dandy. The problem with capitalism is that it was never designed to make everyone rich. Captalism taken to it's extremity, in fact,  ensures that everyone is poor.

hummingbird
hummingbird

@manapp99 I know each generation has had its challenges. But now it's not just economic and social instabilities we have to worry about, we also have to be concerned about all the special needs that kids have now more than ever. Autism and ADHD are at an all time high now so the odds have increased of having children with these disorders.

peterpalms
peterpalms like.author.displayName 1 Like

It isn't falling apart. It is heading in the carefully planned extinguishingof  the existence of multiple  nations into a single world government  with a single new currency with totalitarian government and a return to feudalism. It is probably to late to stop it. Such a system has occurred before and failed before and probably in the next 100 years will fail as well. But it is not going to be a pleasant century for 99% of humanity. Bulging age rates are the motive. Put another way the 1% that owns 50% of the income of the U.S. and the 7% that owns 53% of this planet are making certain that their living standard will remain the same at the cost of increasing poverty and population control through genocide of the population explosion.