Sugar Rush! Why The Economy Will Run Hot, Then Crash

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

While the economy may have “appeared” to grow during this period, economic growth would have been “negative” without debt increases. The chart below shows what economic growth would be without the increases in Federal debt.

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

Such is why, after more than a decade of monetary and fiscal interventions totaling more than $37 Trillion and counting, the economy remains on “life support.”

(It required roughly $12 in support to generate $1 of economic growth.)

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

While the claims of a robust economy rely heavily upon a surge in consumer spending, it is a mirage of the increase in “social benefits.”

 

Real Incomes Not Improving

A significant problem with a bulk of the analysis put out by mainstream economists, and the media is that it often fails to examine the underlying causes. An excellent example has been that consumer incomes are surging, which will support the economic “sugar rush.” A look at the chart below would undoubtedly suggest that to be true.

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

However, the reality is much less optimistic when you strip out “government transfer payments.”  While the economy has rebounded, real disposable incomes remain below previous highs. Notably, of the next $1.9 trillion in stimulus, only roughly $900 billion flows to households. Such won’t boost incomes markedly.

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

The chart below shows the problem more clearly. As noted above, the “real” economic prosperity of household incomes has not improved markedly without government supports. Such is why, at roughly 2% economic growth, nearly 1-in-3 households are dependent on some form of government handout.

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

 

A Surge In The “Welfare Trap”

There is a massive disconnect between the “stock market” and the “real economy.” As we have discussed previously, the top 10% of income earners own nearly 90% of the stock market.

Sugar Rush Economy Crash, Sugar Rush! Why The Economy Will Run Hot, Then Crash.

For the bottom 80%, which drives the bulk of personal consumption expenditures (PCE), they continue to struggle to make ends meet. Such is why the dependency on social welfare now comprises 1/3rd of total incomes. Other statistics are just as daunting.

  • 38-million Americans on food stamps
  • According to the Census Bureau, an estimated 50% of the 330 million Americans get at least one federal benefit.
  • An estimated 63 million get Social Security; 59.9 million get Medicare; 75 million get Medicaid; 5 million get housing subsidies, and 4 million get Veterans’ benefits.
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