From DAVE POLLARD (March 2006)
How To Save The World blog
On a couple of occasions, I’ve tried to explain the vulnerability and unsustainability of our over-leveraged, debt-dependent, consumption-dependent economy.While Jon Husband was visiting with me today, he talked about the power of visualizations, and I decided it might be easier to explain this with a chart… Here’s its explanation:
The economy depends fundamentally on the ‘consumer’ activities of taxpayers, and specifically on the willingness and ability of taxpayers to spend their money on real estate (flow 1), taxes and user fees (2), and the purchase of (now mostly overpriced, imported) products (3). The spending on real estate (1) drives up real estate prices, providing increased collateral to consumer lenders (4), allowing these lenders to loan ever-more money to taxpayers (5). This creates a self-perpetuating Real Estate Cycle (flows 1, 4, 5) that produces the Two Income Trap.
The taxes and user fees paid by ordinary taxpayers (2) fund large tax cuts to rich taxpayers (6) which are rewarded by campaign contributions to ‘friendly’ politicians (7), so that a Campaign Funding Cycle (flows 2, 6, 7) is created.
Keep reading on Pollard’s blog…