The US Ponzi Economy

Excerpted from John Hussman's Weekly Market Comment,

When the most persistent, most aggressive, and most sizeable actions of policymakers are those that discourage saving, promote debt-financed consumption, and encourage the diversion of scarce savings to yield-seeking financial speculation rather than productive investment, the backbone that supports a rising standard of living is broken.
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Meanwhile, financial repression by the Federal Reserve has held interest rates at zero, discouraging savings while encouraging and enabling households to go more deeply into debt. Various forms of deficit-financed government assistance and unemployment compensation have also been used to make up the shortfall, allowing consumption, and by extension, corporate revenues and profits, to be sustained. As long-term economic prospects have deteriorated, the illusion of prosperity has been maintained through soaring indebtedness, coupled with yield-seeking speculation in risky assets that has repeatedly (albeit not always immediately) been followed by crashes throughout history

The U.S. Ponzi Economy is one where domestic workers are underemployed and consume beyond their means, household and government debt make up the shortfall, corporate profits expand to a record share of GDP as competitive pressures are reduced and cheap goods and labor are outsourced, corporations both accumulate the debt of other companies and issue new debt of their own, primarily to repurchase their own shares at escalating valuations, our trading partners (particularly China and Japan) become our largest creditors and accumulate trillions of dollars of claims that can effectively be traded for U.S. property and future output, Fed policy encourages the yield-seeking diversion of scarce savings toward speculation in risky securities, and as with every Ponzi scheme, everyone is happy as long as nobody seeks to be repaid.

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