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A pair of Reuters articles provide yet more compelling evidence that the U.S.'s Ponzi-scheme economy, built upon unsustainable consumerism, is terminally ill. The surprise here is not that the scheme has collapsed, but that the U.S. was able to deceive the rest of the world – and itself – into believing that this “economic model” was not simply a cynical sham by a “dead-beat” borrower.

For decades, the U.S. has “funded” a level of government services that it cannot pay for (along with its bloated, war-machine) through exponentially increasing its debt. It has been hiding the magnitude of this fiscal insanity with ever more fraudulent accounting. Indeed, David Walker, the former Comptroller of the U.S. government (its chief accountant), has literally been touring the country trying to raise awareness of the increasing inevitability of U.S. national bankruptcy.

Meanwhile, U.S. consumers have duplicated the financial suicide of their government, through equally reckless borrowing – as have U.S. corporations. I've already written extensively on these mountains of debt, most recently in “A Tale of Two Economies: U.S. versus China”. However, as I noted in that commentary, for an authoritative look at U.S. debt, I recommend the wealth of information on M.W. Hodges' site, in his thorough analysis “America's Total Debt Report” (not recommended for those prone to nightmares!).

The first, major wake-up call that this empire of consumerism was collapsing occurred less than two months ago, with the bankruptcy of the U.S.'s second-largest shopping conglomerate, General Growth – along with at least 158 of the malls it owns (see “BANKRUPTCY for second-largest U.S. mall-owner”). By one estimate I have heard, the U.S. had as much as 50% excess capacity in its retail sector at the peak of the consumer “bubble”.

Empirically, earnings from the retail sector show that apart from WalMart (and a few other, rare examples), this entire sector is shriveling under the strain of the de-leveraging of the U.S. consumer – which has just begun. With the combination of falling wages, rapidly eroding wealth, and the re-emergence of inflation, such debt-reduction can only be a gradual process.

If U.S. households make a concerted effort to reduce their debt-load to a manageable level, it would still take at least a decade to bring those debt-levels to somewhere close to a historical norm. Should this debt-reduction be much more gradual (a more realistic scenario), then this process will take at least a generation.

Either way, the carnage in the U.S. retail sector is certain to be catastrophic while this debt-reduction takes place. Equally important are the psychological considerations. It took many years of brainwashing from the corporate propaganda-machine to cause Americans to totally abandon any semblance of prudence in their financial management. By the time consumer de-leveraging is complete, this necessity of thrift will have become such a deeply ingrained pattern of behavior that the U.S. propaganda machine would have to “re-train” U.S. consumers from scratch.

This was the gist of a Reuters article from June 12^th, summarized by the statement “2007 (spending) levels were a historic high.” A “summit” of retailers, sponsored by Reuters, bravely talked about the need to demonstrate “value” in the goods they hoped to sell.

Yet none had the courage to address a much bigger concern: demonstrating the necessity of purchasing non-essential goods to an entire generation of Americans who have been impoverished by an unprecedented collapse in wealth – which has occurred simultaneously with their unprecedented mountains of debt.

While a small number of luxury-goods retailers can be sustained by the tiny component of American society which remains filthy-rich (the 1% of Americans who hold 35% of all wealth), most mid- to high-end U.S. retailers face certain extinction. Those who survive will have to do so through cost-cutting, and a business model based on year after year of flat or declining sales.