The 'Bush Boom' is an Epic Bust

Either we're in a recession or we're about to start one. Either way, the latest expansion is over. While there may be some question about when it happened (the expansion, that is) the reality is it was the least impressive expansion since WWII. Below I will explain why.

Before I move forward, let me address specifically any readers who still think the last expansion was "the Greatest Story Never Told." I am going to use facts to demonstrate why the latest expansion was terrible. If you don't like the facts please feel free to present you own facts. In fact, please do so. But please only use facts from reliable sources. Reliable sources would be the government agencies that collect and present this data. To sit at this table, you must bring data (properly adjusted for inflation) that is from sources used by all economists not from sources whose credibility is non-existent.

That being said (and I can't believe I even have to address this issue).

Let's start with the consumer side of the equation. First , job growth during this expansion is the weakest of any recovery since WWII. (This information comes from the National Bureau of Economic Research and the Bureau of Labor Statistics)

As a result, real median household income (income adjusted for inflation) is now lower than it was at the beginning of this expansion (this is the first time this has happened in 40 years) (This information comes from the Census Bureau).

So -- where did the money for consumer spending come from? Part of it came from savings. Here is a chart from the St. Louis Federal Reserve of U.S. national savings. Notice this number has been decreasing for the last 25 years and is currently hovering around 0 percent.

Debt is the real source of funds for this expansion (this information comes from the Federal Reserve's Flow of Funds report and the Bureau of Economic Analysis).

As a result of this increased debt load, a larger portion of consumer's income (which has been stagnant for this expansion) is going to debt payments:

So looking at the consumer we see the following picture emerge.

1.) Job growth was the weakest of any post WWII recovery.

2.) Real median income actually dropped for the duration of this expansion.

3.) To sustain consumption, consumers went on a mammoth debt acquisition binge, so that now

4.) Debt payments are as high as they have ever been on a percentage of disposable income basis.

So after 7 years of economic expansion we have lower incomes and more debt.

However, the consumer isn't the only person who ran up a ton of debt.

The Bush White House has again run up the national credit card. Here is a list of total debt outstanding at the end of the government's fiscal year:

09/30/2007 $9,007,653,372,262.48

09/30/2006 $8,506,973,899,215.23

09/30/2005 $7,932,709,661,723.50

09/30/2004 $7,379,052,696,330.32

09/30/2003 $6,783,231,062,743.62

09/30/2002 $6,228,235,965,597.16

09/30/2001 $5,807,463,412,200.06

09/30/2000 $5,674,178,209,886.86

The current debt outstanding is $9,437,425,175,221.31

Notice that since 2002 the Federal Government has issue over $500 billion of net new debt per year. And yet, we have continually been told the budget deficit is getting better. Let's ask a fundamental question: if you continually spent less than you made, would you have to borrow money?

As the US has become more reliant on debt financing it has also become more reliant on foreign governments for its financing. Here is a chart from the St. Louis Federal Reserve of the total U.S. debt held for foreign investors:

In short, growth at the national level is dependent on the issuance of debt. And we are now reliant on foreigners for an increasing percentage of our growth. A former Federal Reserve Chairman (Paul Volcker) explains why this is a bad development:

More recently, we've become more dependent on foreign central banks, particularly in China and Japan and elsewhere in East Asia.

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