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**infarrelisam** · 02-05-2006, 08:54 AM

That's not quite true. Yes, wages have declined during the Bush administration, but that's normal considering the economic conditions that have prevailed during the Bush years. Wages don't start to go up at any kind of decent pace until the third or fourth year of a boom. This was true in the 90s, when wages didn't start to really take off until 1996, and it's true of this boom too, with wages in the last 12 months rising 3.3%, causing fears of inflation as the labor market tightens.

I think that from here until the next recession, hopefully at least a few years away, we'll see wage gains over inflation of at least 2% per year.

Now, onto consumer spending and debt. Yes, consumers are more indebted than ever. This is mostly due to the irrational exuberance in the housing market. People who own houses are spending all their money, figuring that their homes will rise 15% a year indefinitely and never drop in value. Even worse, many are borrowing nearly the full value of their home so they can spend more! People who have just bought homes are spending all their money trying to make the payments. So right now we have a savings problem. But I don't think it's as economically problematic as you might think. All it means is that when the next recession hits, something is going to happen that happens in every recession: a lot of people are going to bankrupt. Real estate will get the bad name stocks did around 2001-2002. Of course by then, stocks will be rising and all the people with short memories will start pouring money into stocks again. Which means an increase in the savings rate, which in turn leads to higher capital gains taxes which in turn leads to a balanced budget.

These things move in cycles. I see nothing happening in 2006 that hasn't happened here before. Unlike a nation like France or Japan, we don't have an impossible structural deficit, or longterm problems with our economy. Being Canadian, I think the best example I can give you of our situation is Canada during the Mulroney years. Mistakes were made on the budget side, but Canada's free economy and smarter government after the Liberals took power made it all right.

02-05-2006, 08:54 AM	#5
infarrelisam Join Date Oct 2005 Posts 428 Senior Member	That's not quite true. Yes, wages have declined during the Bush administration, but that's normal considering the economic conditions that have prevailed during the Bush years. Wages don't start to go up at any kind of decent pace until the third or fourth year of a boom. This was true in the 90s, when wages didn't start to really take off until 1996, and it's true of this boom too, with wages in the last 12 months rising 3.3%, causing fears of inflation as the labor market tightens. I think that from here until the next recession, hopefully at least a few years away, we'll see wage gains over inflation of at least 2% per year. Now, onto consumer spending and debt. Yes, consumers are more indebted than ever. This is mostly due to the irrational exuberance in the housing market. People who own houses are spending all their money, figuring that their homes will rise 15% a year indefinitely and never drop in value. Even worse, many are borrowing nearly the full value of their home so they can spend more! People who have just bought homes are spending all their money trying to make the payments. So right now we have a savings problem. But I don't think it's as economically problematic as you might think. All it means is that when the next recession hits, something is going to happen that happens in every recession: a lot of people are going to bankrupt. Real estate will get the bad name stocks did around 2001-2002. Of course by then, stocks will be rising and all the people with short memories will start pouring money into stocks again. Which means an increase in the savings rate, which in turn leads to higher capital gains taxes which in turn leads to a balanced budget. These things move in cycles. I see nothing happening in 2006 that hasn't happened here before. Unlike a nation like France or Japan, we don't have an impossible structural deficit, or longterm problems with our economy. Being Canadian, I think the best example I can give you of our situation is Canada during the Mulroney years. Mistakes were made on the budget side, but Canada's free economy and smarter government after the Liberals took power made it all right.
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