* bankrupt, corrupt government
* over-extended, cheated customers
* the disappearance of the middle class
* overheated real estate and stock market 'bubbles'
* unfair oligopoly practices inhibiting innovation and entrepreneurship
* massive transfer of wealth from the poor to the very rich
Here is one of the most important, the Real Estate Cycle (I've removed reference numbers to an accompanying chart in Pollard's post):
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, taxes and user fees, and the purchase of (now mostly overpriced, imported) products. The spending on real estate drives up real estate prices, providing increased collateral to consumer lenders (4), allowing these lenders to loan ever-more money to taxpayers. This creates a self-perpetuating Real Estate Cycle that produces the Two Income Trap.
In an earlier post on the Two Income Trap, Pollard provided (among other things) this informative nugget of information:
Compared to 1978, the average American family spends (inflation-adjusted) 21% less on clothing today, 22% less on food (grocery & restaurant combined), and 44% less on furniture and major appliances than they did, although their (mostly-two-income) family take-home has risen 70% relative to the (mostly-one-income) take-home of the early 1970s. Where has the extra money gone? First and foremost to skyrocketing housing costs (up 100% on average, up to 600% in areas close to the best schools).
Another is the Campaign Funding Cycle, in which
[t]he taxes and user fees paid by ordinary taxpayers fund large tax cuts to rich taxpayers which are rewarded by campaign contributions to 'friendly' politicians...
Still another is the Corporate Subsidy Cycle, along with the Oligopoly Creation Cycle:
The government also rewards these campaign contributions by giving large subsidies to major corporations to enable them to globalize and crush smaller competitors, which drives up the share values of these large oligoplies, which in turn produces huge profits for the oligopolies and their rich taxpayers...
The problems with these various cycles, Pollard observes, is that the taxpayer outflows are increasing, while the inflows of tax money are decreasing. And the burden of government and consumer debt is skyrocketing. The overall process is what I've described elsewhere as a crisis of inputs in the state capitalist system.
What happens when the credit crunch comes -- taxpayers have borrowed their limit and just can't spend any more? What happens when the heavy trade deficit causes a spike in interest rates , making debts unrepayable (other than record rates of bankruptcy)? What happens when the real estate bubble bursts?
The answer: all these flows dry up. In other words, depression. It's interesting, by the way, how Pollard's cycles, the neo-Marxist analysis of Paul Mattick and James O'Connor, and Austrian theories of malinvestment and crackup booms, all dovetail so nicely together.