Wednesday, September 16, 2009

The Deceptive Decent into Economic Depression

“Things don’t seem so bad.” I hear this every time I talk about the impending economic depression. Its like falling off the Empire State Building, things don’t look bad until you hit bottom. The approaching catastrophe becomes obvious once you know what to look for.

Gravity is a positive feedback mechanism that makes you fall faster and faster until you strike the ground. The hundreds of thousands of jobs lost from our workforce every month represent a positive feedback that forces the American economy to continue to diminish. It doesn’t seem bad yet, but it is obvious where we are headed.

One of the difficulties of perceiving this process is because it is a delayed feedback. The effects of lost jobs are difficult to see because consumers don’t stop spending money the day they lose their jobs. For example, nearly 2 million people lost their jobs in the first quarter of 2009. This caused a slight immediate decrease in consumer spending, but the full effect of these lost jobs will not be felt until their unemployment checks run out and their personal assets are exhausted. We can expect another significant decrease in the American economy some time in the first or second quarter of 2010.

Our economy continues to slowly collapse because every month the workforce decreases, which leads to a decrease in consumer spending. Each month more jobs are lost because the flow of money can’t sustain the workforce. The first wave of people to lose their jobs in 2008 are still spending assets and unemployment funds. The slow slide towards another Great Depression will begin to accelerate when these resources are exhausted.

Things don’t look so bad – unless you are among the 6.5 million people who have lost their jobs or the 4.0 million families who have lost their homes since the beginning of 2008.

The storm is coming! We can still turn the economy around and achieve immediate recovery, but it isn’t going to be easy and it isn’t going to be simple.

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