Uncertainty Is Weakening The economy Has It Exactly Backwards

This is via Rex Nutting of MarketWatch.

It’s the weak economy that’s feeding our uncertainty.

The American economy is losing momentum because it’s running out of fuel. Our economic fuel is income, and it’s in short supply.

Without income, people can’t spend. If people don’t spend, businesses won’t expand. And if businesses won’t expand, incomes won’t grow.

For a while, back during the housing bubble, lots of people were able to pretend their incomes were higher by borrowing heavily against their homes and spending the proceeds. From 1998 to 2007, U.S. households withdrew an estimated $5 trillion from their home equity, amounting to an additional 5% of personal income over that period.

Then, after the bubble burst, the federal government stepped in to support incomes by cutting taxes and expanding the safety net, which boosted after-tax incomes by about $3 trillion over the past four years, or about 6% of incomes. That support was absolutely critical in preventing an even deeper depression, but now it’s disappearing.

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