by Bill Bonner
“An article in The Financial Times yesterday tells Americans they may face a “lost decade,” like the Japanese in the ’90s. What? We’ve had a lost weekend or two. But how can you lose a whole decade? But Americans have done it already. Read on…
What’s the hot news today? Well, the European Central Bank is withholding money from the Greeks. It says they need to get their act together before it will give them more money. This bit of drama kept markets on edge yesterday. The Dow finished up. It broke a 6-week losing streak last week. So far this week, it seems to be continuing in an upward direction in an irresolute kind of way. Oil remained down. US 2-year debt, on other hand, has been in a 10-week winning streak. You know what that means. When the price of debt goes up and the price of oil goes down? It signals a weaker economy. Not that we especially care. We’ve got our story. And we’re sticking to it until the facts prove we’re wrong. Even then, we might not give it up. Our story is this:
After a 60-year debt expansion, the developed world – led by the USA – went into a period of debt contraction. This is what we call the Great Correction. We know for sure that debt is being consolidated – at least in the private sector. We know that this will be a drag on the economy for several more years. We know also that the feds’ efforts to fight the correction are setting up another crisis and correction – this one in the public sector. So, it looks as though at least two things will be corrected – private debt…and public debt. Beyond that, we’re not sure what excesses, mistakes and absurdities this correction will target. Only time will tell.
So far, all the facts that have come to light in the last 4 years seem to corroborate our Great Correction story. As expected, jobs are few and far between. Consumer spending is weak, as households try to repair their balance sheets. And the economy limps along with negative or barely positive real GDP growth. What does this sound like to you?
Like Japan, of course, which has been in a Great Correction for 20 years. And even though the peak of credit in the US wasn’t hit until 2007 we’re beginning to think that the actual correction began in 2000. Since then, jobs, stocks, houses, and the real, per-capita GDP have gone nowhere. In other words, a stealth correction has probably been going on for 10 years already…it didn’t come out into the open until after 2007.
Last week and this week, several articles in the financial press have warned that America might face a “Lost Decade,” similar to the ’90s in Japan. They can stop worrying. We’ve already lost a decade. Now, another ‘lost decade’ is coming up. Yes, just look at page 20 of today’s International Herald Tribune: “Long unemployment lines in US cities could last years, study finds…” And then the follow-on subhead: “Report says may areas will need until 2020 to reach pre-recession levels.” Yes, dear reader… One ‘lost decade’ already completed. Another coming up. Losing one decade could be bad luck. Losing two begins to look like recklessness. Inattention. Or robbery. Stay tuned…
For the benefit of dear readers, the service level at United-Continental has crashed. We found more professional service at the Anne Arundel county dump on Saturday. The fellow checking our trash was a half-wit. But at least he didn’t get in the way. Believe it or not, they have a kind of TSA security at the dump. They want to be sure people from other counties aren’t throwing out their junk in Anne Arundel County. So, the fellow at the gate checks your driver’s license to see where you live. Pretty soon, he’ll be issued jackboots. Naturally, our papers were not in order. Our license shows a Baltimore City address. But it didn’t seem to matter, because the guy checking our documents was probably illiterate. “You can go ahead,” he said politely, ignoring the one and only reason he was supposed to check the papers.
At Dulles Airport yesterday, nobody told us to go ahead. Instead, they all stopped us. It took us an hour of standing in line to check in – Business Class, no less. People in economy were probably lucky to be able to check in at all. But who cares. It’s still almost a miracle to be able to leave our home in Washington at 4PM and be in London at 6AM the following day. What a boost to our standard of living! This is the kind of miracle that high-octane fossil fuel can give you. You have to burn a lot of energy in order to lift a giant vessel made of thin metal, filled with fat people off the ground. And then fly across the Atlantic Ocean with it! You can’t do that with solar power…or wood…or batteries charged up from hydroelectric power stations. You can only do it by reaching into the earth and using up some of its stored up calories. And you can only use those calories once. (For reasons we can’t figure out at this hour, the law of conservation of energy doesn’t seem to apply.)
As you will see later this week, the energy revolution of the 18th century boosted output and speeded up GDP growth. Our standard of living – not to be confused with our quality of life – is directly proportional to the amount of energy consumed. All of which is a warm up to where our meandering will take us this week. Energy use in the US peaked in 1997. Real US GDP peaked a few years later. Since then, it’s been downhill for the economy.
From memory…US GPD didn’t hit 10 trillion dollars until about 2000. Now, it’s about $14 trillion. Nice growth, huh? But wait. We know that a lot of that was phony, debt-fueled growth. It was phony because it raised living standards to a level that people couldn’t really afford. Or to look at it another way, it drew on earnings that hadn’t happened yet…and maybe never would. But how much of that $4 trillion worth of GDP is real and how much is phony? We don’t know. But we note that the federal deficit is about $1.5 trillion, which is as phony as a $3 bill. Subtract that and you have a gain of $3.5 trillion over 10 years…or about $350 billion per year.
Let’s see, adjust that for population growth. Subtract phony private sector debt-fueled growth too. And properly adjust for inflation. What do you get? You get a lost decade.”