Another crash ahead?

The US is on the edge of the economic precipice

Trump’s shutdown also adds to growing worries about the economy. 

The stock market is on track for the worst December since the Great Depression. 

World markets have lost nearly $7tn in 2018, making it the worst year since the 2008 financial crisis.

The shutdown is stoking fears that Trump could do something even more alarming. 

He might fail to authorize an increase in government borrowing before the federal debt reaches the current limit, which Congress extended to 2 March. 

A default by the US on its obligations would be more calamitous than a government shutdown.

. . . .

Most Americans are still living in the shadow of the Great Recession that started in December 2007 and officially ended in June 2009.

More Americans have jobs, to be sure, but their pay has barely risen when adjusted for inflation. 

Many are worse off due to the escalating costs of housing, healthcare and education.

Trump has added to their financial burdens by undermining the Affordable Care Act, rolling back overtime pay, hobbling their ability to join together in unions, allowing states to cut Medicaid, and imposing tariffs that increase the prices of many goods.

America’s wealthy, meanwhile, have been taking home a growing portion of the nation’s total income. 

But the rich spend a small fraction of what they earn. 

The economy depends on the spending of middle-, working-class and poor families.

. . . .

The problem isn’t that Americans are living beyond their means. 

It’s that their means haven’t been keeping up with the growing economy. 

Most gains have gone to the top. 

If the majority of households had taken home a larger share of national income, they wouldn’t have needed to go so deeply into debt.

Without wage growth, American workers can’t continue to buy without going into deeper debt. 

Unless they continue to buy, the economy can’t continue to move forward.

It’s the same sort of trap that preceded the 2008 and 1929 crashes.

After the 1929 crash, the government invented new ways to boost the wages of most Americans – social security, unemployment insurance, overtime pay, a minimum wage, the requirement that employers bargain with labor unions, and, finally, a full-employment program called the second world war.

By contrast, after the 2007 crash the government bailed out the banks and pumped enough money into the economy to stop the slide. 

But apart from the Affordable Care Act, nothing was done to address the underlying problem of stagnant wages.

Ten years after the start of the Great Recession, we face another economic precipice.