Friday, September 18, 2009

Blowing the Next Economic Bubble

Another disastrous “economic bubble” grows unsuspected by political leaders and economic experts.

A typical “bubble” represents a condition where the economy grows to an artificially high level. The current bubble is caused by unemployment insurance holding the declining economy at an artificially high level.

The American workforce lost more than 6.5 million jobs since the beginning of 2008. Consumer spending would have declined “naturally” without the unemployment payments, and our current economy would have spiraled down to a much lower level. Unemployment funds have maintained consumer spending at an artificially high level, which keeps the economy artificially elevated.

The pressure on unemployment insurance increases each month as hundreds of thousands of additional jobs are lost from the workforce. The national debt is already a sickening burden, and the government is rapidly approaching bankruptcy.

Eventually the demand for unemployment funds will exceed the available resources, and the dispersal of checks will abruptly stop. The “unemployment bubble” will burst, and the economy will once again “correct” by plummeting into free-fall.

When this bubble bursts the “economic correction” will result in millions of additional jobs lost from the workforce with a corresponding decline in consumer spending. We can avoid this painful experience by implementing a plan for immediate economic recovery. Economic recovery can be achieved by restructuring consumer debt, as stated in an earlier post. Consumer spending would increase because less money would go to payments on existing debt each month, leaving more money for consumers to spend on goods and services. This increase in consumer spending would create a positive feedback process, which would result in economic growth and more jobs.

This bubble hasn’t been caused by reckless risk-taking, corporate mismanagement, or even unbridled greed, but it is going to be just as catastrophic. This is a good example of how aspects of a complex system that were intended to benefit the system can actually contribute to its destruction.

No comments:

Post a Comment