How does a consumer based economy operate without disposable income? This graph from calculated risk of MEW (mortgage extracted equity) relates almost one to one with disposable income for most households. Couple this with a flat median income since the 1970s and where is the disposable income coming from?
It is possible that the China Effect and its deflationary follow ons in consumption for manufactured goods has hid this to a certain degree. But even now it cannot hide the inflation that has been present in energy and food; even China is being hit with those. To make it worse economists and government tend to remove energy and food from their inflation numbers and only look at 'core inflation' which is basically inflation without all the inflationary stuff. Hardly a good metric unless you want to parade around like a peacock in feel good politics.
It still poses the problem of where the disposable income which is the engine for both growth, prosperity and investment in a capitalistic economy is going to come from in the near future.
