An Alstrynomic Analysis
November 06, 2009
– Comments (14)
America's Private Economy is primarily driven by Real Estate and Auto Manufacturing plus the Financing Surrounding those two sectors of the Economy. Collectively we are looking at the majority of the nation's assets factoring outstanding debt and equity collectively exceeding $50 Trillion dollars.
These two sectors plus supporting businesses including finance and sales drove the majority of income and tax revenues to government. In turn, those tax revenues drove trillions of dollars into health care, defense, and welfare based consumer spending.
Over the years, we built up health care into 20% of the GDP.....defense and homeland security to about 10% of GDP. Welfare, Social Security and Unemployment into about 10% of GDP.
In other words, the tax receipts from the private sector drove the spend from the public sector creating our $14 Trillion dollar GDP.
In order for our system to function, we need autos, real estate, and finance humming on all cylinders....otherwise the system collapses under its own weight. Between 2001 and 2007...we loaned an unprecedented amount of money to real estate which drove the growth into the rest of the economy.
Now we have cut off lending to real estate, real estate is crashing, sales to autos have been cut in half, and tax receipts are evaporating for the first time since The Great Depression. October's preliminary numbers are far worse than most expected. This trend is likely to continue as real estate continues its downward spiral and sales slow...especially commericial real estate.
Without tax receipts, cities, counties and states are going to be forced to make massive cuts. Since government spend is half the GDP....the impact on the economy is going to be material.
In sum, real estate, autos and finance drove the private economy and tax revenues to the public sector where government spending drove revenues into health care, eduction, defense, and welfare. Without real estate and autos humming......government revenues will contract massively and now it is...and based on our huge infastructure in America....the fallout will be unprecedented as we try to sustain an unsustainable level of debt.
RSS Headlines
Fool UK