Business Week: "We're looking at a permanently smaller economy .... "

[GregW]

I think this economy is adjusting to the amount of wealth we have as contrasted with the amount of money we thought we had. We are making a severe transition from the FIRE (finance, investment, real estate) economy to one that concentrated on building wealth in the form of an improved infrastructure, increased personal savings and much reduced use of personal credit.

Now that we have put the FIRE out we need to concentrate on growing, mining and manufacturing real wealth instead of just creating money out by unrestrained speculation and high margin trading.

[cpg35223]

Well, I don't believe for a moment that it's permanent. But it's sure as heck going to be around for a few years. I mean, all the doomsayers around 1990 were saying the same thing, right before we had eight incredible years of economic growth. But the American economy is really an entrepreneurial economy, which means we'll reinvent ourselves. As opposed to planned economies elsewhere, we typically have the capacity to turn on a dime.

The key here is that, as a country, we're going to have to collectively work to destroy debt. Car payments, credit cards, home equity loans, you name it. Some of that will happen through bankruptcy. Some of that will happen through people slowly digging themselves out of a hole. So that means a lot of marginal buyers of Porsche Boxsters and vacation homes and big-screen TVs will hold off on their purchases until they can actually afford them--if ever.

[neil0311]

Originally Posted by bale002

Sometimes smaller is better.

You must not be a woman.

[jimmyP]

I believe he is correct about the decline of the economy. And it isn't new. We haven't had real growth in GDP since the 90's. The expansion of credit has exceeded GDP every year. Seems we were borrowing our way to prosperity.

[N.Y.Traveler]

Of course, the economy is going to be smaller!
It was created by a bubble!
Now, the bubble is gone!

[Sgoldie]

All this is the result of Nafta and our attempt to spread the wealth across the rest of the world. In doing so we gutted our own wealth building industries in the mistaken theory that nation building would turn into trade for us.

This includes the real estate bubble. As people were being laid off after the passage of Nafta they saw an alternative way to build wealth in falsely appreciating home prices causing an unsustainable bubble.

Our general economy has no alternative but to recede. Things that produce wealth (from nothing which is the only 'real' thing that does) such as farming or mining (our stronger points), and most especially manufacturing and others have been gifted away. The scariest point being our suseptibility in things concerning national security over which we no longer have full control. In many ways we are naive in believing that everyone is exactly like us in our altruism.