"Our new economy is shrinking because technology leads to efficiency over growth."
I disagree with this premise. IMHO, it is much simpler: we as individuals lived beyond our means for 20+ years by borrowing money against our houses and against our personal word (e.g. credit cards). We as governments lived beyond our means in terms of direct spending as well future spending promises (e.g. promising retirement/pension/medical benefits that are funded by borrowing or not funded at all). Big companies also promised retirement (pension) benefits that assumed a continuing growth of the investments that backed the pensions - that didn't work out so well.
"But why now, when it hasn't in the past?"
In the past, we relied on general growth exceeding our indebtedness, "growing" our way out of our debt. This is a game that cannot go on forever... and the longer it goes on, the worse the crash will be at the end. Right now, it is looking pretty tough.
In short, we lived beyond our means for 20+ years. We will have to live "below our means" for a substantial number of years to balance our past spending against our current and future incomes... and that assumes we have the will to make the hard decisions to truly reduce our spending rather than claiming to reduce spending, but the "reductions" are 2/5/10 years in the future.
A big part of living "below our means" is buying less, paying down our debt, which means lower demand and thus lower job levels.
This is absolutely right. Average personal savings rates in India and China: 30% and 50% (and that's of their gross income). Average personal savings in the USofA: -2%. We've lived so far beyond our means that it had to catch up to us.
The real scare for me is the potential for another, larger bubble: the "Credit Bubble". A bubble exists when asset price inflation rises beyond what incomes can sustain. A bubble represents people abandoning reason and prudence for hope and greed. (http://www.chrismartenson.com/crashcourse/chapter-15-bubbles)
The Credit Bubble will pop when the sum total of all of our society's debt prices (read: interest) exceeds our ability to pay. Experts think this could happen anywhere between 2015 and 2020. When that pops, the housing bubble will look minuscule.
The prudent should prepare now. Buy food storage. Become self reliant. And get out of debt!
> Average personal savings rates in India and China was: 30% and 50%
Yes, but if you take into account the 9% inflation in India, the savings might be a net loss.
As was pointed out to me earlier in another HN discussion, the only reason why the Indian government guarantees a seemingly too good to believe interest rate of 9% for the savings accounts of their senior citizens is because that rate cancels out inflation.
Wouldn't the rational decision for this scenario be to participate in the credit bubble and use the money to buy food storage and become more self-reliant?
I disagree with this premise. IMHO, it is much simpler: we as individuals lived beyond our means for 20+ years by borrowing money against our houses and against our personal word (e.g. credit cards). We as governments lived beyond our means in terms of direct spending as well future spending promises (e.g. promising retirement/pension/medical benefits that are funded by borrowing or not funded at all). Big companies also promised retirement (pension) benefits that assumed a continuing growth of the investments that backed the pensions - that didn't work out so well.
"But why now, when it hasn't in the past?"
In the past, we relied on general growth exceeding our indebtedness, "growing" our way out of our debt. This is a game that cannot go on forever... and the longer it goes on, the worse the crash will be at the end. Right now, it is looking pretty tough.
In short, we lived beyond our means for 20+ years. We will have to live "below our means" for a substantial number of years to balance our past spending against our current and future incomes... and that assumes we have the will to make the hard decisions to truly reduce our spending rather than claiming to reduce spending, but the "reductions" are 2/5/10 years in the future.
A big part of living "below our means" is buying less, paying down our debt, which means lower demand and thus lower job levels.