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Despite nearly three years of uninterrupted job gains, the U.S. economy still can’t generate a paltry 2% GDP rate, and every quarterly rise in growth is inevitably followed by disappointing contraction.
Frustrating? Yes. But not really mysterious. The underlying problem for the U.S. economy, and for all of G-7 nations for that matter, is debt. Bloomberg published a neat little article that highlighted the full extent of the problem.
“Between 2000 and 2007, borrowed money was adding about $330 billion a year to Americans’ purchasing power, according to the Federal Reserve Bank of New York. By 2009, households were diverting $150 billion to pay back debt — a swing of almost half a trillion dollars, even without counting the impact of lost jobs.”
The de-lever continues, and that is probably the single biggest reason why the consumer is not coming back.
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| Will consumers be able to save this economy despite curtailed purchasing power and stagnant incomes? |
With purchasing power curtailed and incomes stagnant, company profits stop growing as well. For a while, after the 2009 rebound, many of the U.S. multinationals grew their profits in emerging-market nations. But with commodity prices crumbling and with China struggling to stay afloat, that party is over as well. Little wonder that Google, Microsoft and now Apple are entering a “profit recession.”
With private demand curtailed, the only macro solution is a massive Keynesian infusion of government spending, but here debt presents the same problem. Most of G-7 nations are dangerously close to their 100% debt-to-GDP ratio, with Japan well above that figure.
There simply is no political will to spend more, which leaves the whole global economy in the hands of the central banks, who can dutifully print all the money they want only to see it go unspent.
| “Quantitative easing and now negative interest rates are the economic equivalent of hitting your head against the wall.” |
Quantitative easing and now negative interest rates are the economic equivalent of hitting your head against the wall. Easy credit has helped fuel asset bubbles and eased some government financing, but it has done very little to stimulate the economy simply because it can’t stimulate the economy. At a time of great debt, no one wants to borrow even if the money is free.
So we find ourselves in this no-man’s-land as advanced industrialized nations continue to muddle on, propped up by central banking that continues to support financial assets, but true growth will elude us as the mountain of debt overshadows all.
So how does that all add up for investors? It means that interest rates will stay low for far longer than anyone believes and that dividend stocks will be the new “bonds” for those seeking yield.
Happy trading,
Boris Schlossberg
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Britain’s economy slowed at the start of 2016, hit by a struggling global economy and uncertainty ahead of the June 23 referendum on European Union membership. First-quarter gross domestic product grew by 0.4%, down from 0.6% in the final quarter of 2015. That was in line with economists’ forecasts. Economists said the weak global economy and doubts about Britain’s future in the EU had contributed to the slowdown.
The general election has all but started in the race for the White House. The two front-runners celebrated big primary showings Tuesday night, with each scoring major wins in East Coast states, taking big steps toward their potential nominations.
Republican Donald Trump declared that the GOP primary was over. “I consider myself the presumptive nominee,” he said. “Gov. (John) Kasich and Sen. (Ted) Cruz have really, really hurt themselves with a faulty deal that was defaulted on before it was even started.”
Democrat Hillary Clinton signaled at a campaign rally that she would work to win over supporters of Vermont Sen. Bernie Sanders and unite the Democratic base. “Whether you support Sen. Sanders or you support me, there’s much more that unites us than divides us,” Clinton told a rally in Philadelphia.
High school seniors in the U.S. are slipping in math and not making any progress in reading, according to test scores released Wednesday from the so-called Nation’s Report Card. Only about one-third of the seniors are prepared for the academic challenges of entry-level college courses, based on tests given for the National Assessment of Educational Progress.
One-quarter of 12th-graders taking the tests performed proficiently or better in math. Only 37% of the students were proficient or above in reading. The average score for math in 2015 fell 1 point from 2013, the first drop in a decade. Reading scores were flat over the same period, and down 5 points from more than two decades ago. The test was first given to students in 1992.
The Money and Markets team
P.S. If you care at all about preserving your wealth in the coming crash — and then multiplying it many times over — read Mike Larson’s urgent report NOW!
{ 43 comments }
UK’s growth rate is down to 0.4%. The chosen “economists” say it is partly due to the uncertainty of whether or not UK will leave the EU.
The article above describes low to zero growth in USA, China, Japan and elswhere in & out of G7 and that these countries are all strugling with debt.
Can we say then that all these countries (USA, China,Japan, G7 etc) would all be much better if they all apply to join the EU?
Economists really do lend credence to Astrologers.
The problem with the economy is not debt, per se. Yes, there is a disasterious amount. But how did it get like that? The banks who control the currency and the economy want an economy that is based on credit. A “real” economy is based on production and savings. That’s it. And a government that can not allow for a decent return on capital to its citizens is failing.
It’s really that simple. A healthy economy is based on saving and using the capital to invest in productive enterprises. Debt is a form of slavery. Jim
Tom and Jim: You are absolutely correct when you say that it is savings that drives productivity to grow the economy. How can there be savings with falsified zero interest rates? The liberal Keynesian view that spending and consumption drive the economy is dead wrong; it is like the doctor telling you that the symptoms of your illness are the cause. Spending and consumption are only symptoms of a strong economy based on productive investments from savings. Falsified interest rates kill savings and confuse free market thinking by putting the emphasis on the wrong sylable; emphasizing stock buy backs etc., instead of conserving funds for productive investments.
The central banks wag that low interest rates increase consumption, but once consumption has been brought forward the low interest loans still need to be repaid; and spending for replacement of goods bought a couple of years ago (because of low interest rates) will not happen again now as those items are fairly new and the loans on their purchase not yet paid off. Bringing sales forward is very present day orientated; but that is what elections are all about. The “Not on my watch” attitude will kick cans down the road until the election. Expect the Fed to sit on their hands in June and September.
You guys are all ON TARGET this morning!
I totally agree to this concept. The savings generate funds for recycling and refunding to augment capital formation, capex and employment generation besides stabilising the prices.
I agree with you to a certain extent. When you take that much money out of circulation it tends to slow things down, unless it gets reinvested. But aggregate demand is so low that there’s not much reason to invest, so the cash keeps building up.
You mentioned that an expansion of government investment isn’t in the cards because you assume it would all have to be borrowed. Most of that uninvested cash is being held by people who’s propensity to consume is low, so it just sits there, unproductively. They already have everything they want to buy. Why not raise taxes on these people and use the proceeds to invest in infrastructure and other job-creating ventures. I don’t suggest this from some altruistic perspective to lower inequality, although it does. I mention it from a strict efficiency perspective. The spending creates jobs for people who buy things, and magically we get a boost to economic growth.
Please don’t pretend that there is no way to boost economic growth. You just like the way to do it.
High school seniors in the U.S. are slipping in math and not making any progress in reading,
maybe student loans should be test related
ie if you pass , you qualify for a loan …
That would be the smart way, but our present Government is all for supporting the minorities and poor , so your idea has no chance, the smart ones get punished and the standards are being lowered……
Right. And all the poor and minorities are holding down high-paying jobs, while the intelligent among us are either unemployed or partly employed?! Get real.
I agree. We have set the bar for education so low that even the undeserving get a pass. What has this country evolved into??? Competition in sports means little these days also; everybody gets a trophy. Win or lose. Ridiculous times we live in.
yes demand is the problem. But all the money and all the low rates have all but destroyed demand. This is because the wealthy who have become far wealthier because of the market have everything and don’t need to buy anything. the middle class and seniors are being destroyed because they have no appetite for risk and cannot get any return on savings. Put money in their hands instead of corporations buying back stock and investing overseas and banks hoarding money to increase their tier and perhaps we will get out of this mess. If only the Fed had common sense instead of phony data dependence and fear of hurting the stock market we could very well grow again.
Two major factors of slow growth:
1st Unemployment rate is not 5%? If you count those who have stopped looking, it is actually closer to 15%. In March, the labor force participation rate (63.0 percent) and the employment-population ratio (59.9 percent). The percentage of American civilians 16 or older who do not have a job and are not actively seeking one remained at a 36-year high in May, according to the Bureau of Labor Statistics.
2nd Factory utilization rates. Manufacturing , mining and utilities are all at 75% or less. In 94-95 we were at 90%.
Parents need to turn off the TVs and video games, and read, read, read with their kids.
Homework should come first. Suburban parents need to rethink having their kids in 3 activities of more rather than making time for schoolwork. Then the money that has been siphoned away from the schools for many years now, must be resurrected. We need to support our teachers. Schools with large numbers of struggling students must be helped, not punished. These kids are the ones who will be supporting us and leading our country when we are too old to do so. We must all act for the good of all our kids.
read “Crimes of the Educators” by Blumenfeld and Newman and educate yourself
Sounds good but it’s way off base. Here in North Louisiana our population has declined but the school system has grown by forty per cent and the budget has almost tripled. More than half the schools have failing ratings. All scores have dropped badly. An incestuous system produces poor educators that produce more poor educators, all protected by a powerful union- politician alliance. We support our schools with the highest property taxes in the nation and get nothing but a third rate system which is a political patronage machine. The fraud, waste, and corruption is rampant. If it weren’t for religious and private schools we wouldn’t have a functioning system for kids that want to learn. The public schools are the problem not the solution and it has nothing to do with inadequate funding. Jim
To be fair the failure is ultimately that of We The People. In the last bond election only five per cent of the registered voters bothered to vote. It’s estimated that employees and vendors of this system make up about five per cent of the population. We get what we deserve. Jim
Guys..do you still believe the Govt. /Fed figures ?
Never did.
In WHAT COUNTRY is unemployment down to 5%? Certainly not here in the United States – don’t know what obummerphile garbage you’re reading. Just because he lies, you don’t have to agree with him – what about all the people who, for whatever reasons, lost their jobs, ran through their compensation and still can’t find work that pays a decent wage? The big-eared one’s cronies don’t count them but I do! The true unemployment rate is above 10%; just ask all those who are out of work. I’m happily retired, so I speak for them.
Recession? Are you for real? November 2007-March 2009 was an ALL OUT STOCK MARKET CRASH AND A DEPRESSION (Loss 60%) (Cheney/bush), darn near as bad as 1929 (Loss 90%) (Hoover)! And it was brought on by EXACTLY the same kinds of unregulated trading that brought 1929…
Once there was a Law called the Glass-Steagall Act which was brought after the Pecora hearings of 1933 made it clear what had caused 1929…. That Law worked for over 60 years until the Republican Congressional Majority removed it from law. in 1999.. Yea, yea, I know Clinton signed off rather than vetoing it. That said it was written and passed in a Republican Majority Congress at the behest of the cabal of Banking, Brokerage and Insurance….. Those boys brought $400, 000, 000 to get the Majority Republicans to remove it and within 8 years we had 1929 all over again!… :(
I agree with you that GS should not have been repealed. But let’s get real, 495.
Dem Robert Rubin pushed this thing, House voted 362-56 for it and Clinton signed it. It was NOT the Repubs that did this alone…..it was a joint action. Tell the truth for a change.
EVERY Republican voted to remove….. The Republicans had a huge majority… The 56 that voted NOT to remove were ALL Democrats….. Joint effort? I think not. Rubin was a Republican who came from Goldman Sachs. After GS was removed, he was rewarded with a job on the board of Citibank at a $1,000,000 a year and never came to a board meeting…..
Every educated investor and lower risk, day trader around the world is waiting for a market collapse. People with ‘the smarts’ don’t trust central banks and progressive governments who stand in the way of growth. Politian’s who want to perpetuate a bludging society with more free stuff are running out of other peoples money to spend. People with money are in protection mode and unwilling to invest in a phoney system. I hope Trump wins as he may at least improve real confidence in the concept of change because change is what we need.
future is to soon behind new. recession economics samely 1930 why surliquidity banking and surproduction dears what´s happen in theorics is will very easy practice other reality
America is addicted to deficit spending. When Bush the First described the Reagan tax plans as Voodoo Economics he spoke the truth. When Bush the First inherited what at that time was a record deficit from Reagan he partially rolled back the Voodoo. Republicans threw him under the bus. When Clinton rolled back even more Voodoo Republicans predicted recession and unemployment. What actually transpired was the longest period of non-inflationary peacetime economic growth in over 100 years. This period saw 8 years of average job creation of 229,000 per month and a balanced budget.
The tax cuts of Bush the Second yielded the jobless recovery of 2002 – 2004 and 5 trillion in debt. It was only after Greenspan financed the housing bubbled allowing homeowners to borrow trillions of dollars based on fictitious equities that jobs were created. This collapsed in 2008 caused the Government to run trillion dollar deficits and the Fed has printed trillions since then to prop up our phony economy.
We consume more than we produce. We have sent many of our productive assets to slave wage Nations with corporate America pocketing the difference. Illegal immigration has allowed unscrupulous businessmen to pay substandard wages without benefits to the bottom third of our workforce. Our median wage has fallen to the point where there is insufficient growth to foster living wage employment and now profits.
Our deficit is a symptom of the corporate ownership of Government and a citizenry that demands something for nothing. Our tax cuts and spending are financed by debt and without it our economy would go down quickly. Blame is everywhere except where it belongs.
Blame is everywhere except where it belongs? Then why don’t you tell it all?
How about Obama doubling the NATIONAL DEBT to $20 Trillion in 7 years (with NOTHING to show for it)? The Debt that was accumulated from the days of Geo Washington?
Blame belongs on both political parties and all those who support them. Everyone thinks their side is right and the other is wrong. The simple truth is both can be wrong. You blame Obama for doubling the debt after Bush doubled the debt and Reagan tripled the debt. Americans want, want, want and don’t want to pay, pay, pay. We are loath to admit our policies are crap; both parties. Most are blinded by their prejudices thus their blame of anyone but themselves.
yes but now-a-days liberal progressive socialist democrats—- all they do is want more free stuff paid for by the rest of us i think sooner than later the bell will toll and the lavish lifestyle of freebies will come crashing to an end oh and mike… bush didnt double the national debt even though he had to deal with a recession as soon as he took office created by clinton, and terrorist attacks on the twin towers and safe guarding a nation BUT OBAMA doubled the national debt in just 7 yrs and with nothing to show for it but a stagnant economy and millions more on food stamps i guess thats his legacy last time i checked the united states external debt to GDP ratio sits precariously close to 100% our number now is 99.7% thanks to barack obamas reckless spending habits
W.T.F…what the future, holds? If anyone is to blame it’s us; the world over. The time has come. In reading all these opinions it is evident we do agree. The direction is clear and inevitable. It happens. Cycles…
The markets are in defense mode…smart money vs. dumb money. One does wash the other, but, its who will hold the short straw… the long straw is pounding the square peg into the round hole. The market makers will get their way, at least the upper hand.
Shuffle the cards enough and the best plays will be in your favor. The frog boiled to death in water it wasn’t sure was getting too hot. The time has come, gather the long positions and position the short ones. Draw your trend line and watch the break outs or downs. Take command of the portfolio. Investing is for growth, yet it’s become illusive. There are no guarantees of future results…good luck.
Who is going to or even able to pay back the debt?
there are 2 ways to deal with this debt the first is to devalue the currency so in essence you devalue the debt but the end result will be sky high inflation and sky high unemployment the other is to default and the end result will be sky high unemployment take your pick the end result will be the same
Yes easy!
1. Tell the kids no OK tests – No student loans.
2. For the economy. Save, Invest.
Same for Mr & Mrs. Build your nest egg.
You can’t rely on Uncle S to save your retirement.
Let’s not tip toe around what’s going on here anymore.
The BOJ does this, and the ECB does that, and the FOMC is moving here and there, not to mention the various national Treasuries, and all the other players.
All of this is a part of a plan. What might that plan be you ask. It’s a plan to break down the populations of the key industrial nations around the globe so that a NWO (new world order) Global Government, and a single, or at least a number of regional currencies can be implemented. If it’s a regional set of currencies, they will eventually be converted to a single central currencie.
Right now the focus is on breaking down the investor class of individuals around the world. Witness how around the world how difficult it is to get safe income, and how their plans pushed people into much riskier investments. That effort also hurt one of the groups of people that were most likely going to provide resistance to the NWO plans. The elderly remember how life was … back when, and had the historical perspective on their side, and knew that bad changes were afoot.
We are experiencing a shift that will forever change things around the globe. Every action by the Merkel’s of the world BHO, and other leaders are all a series of moves and subsequent adjustments to plans to achieve their world vision. Having gold won’t help, neither will food after a while. This is the Change part of Hope & Change, so embrace what you’ve brought upon yourselves, and prepare for a much degraded standard of life.
Sorry for the bummer, but as they say “it is what it is”.
Mike,
It is “what it is”, until the voters wake up and see through the Conservative smoke stream that has been blowing in their faces since the Conservative Revolution of 1981 (ala Reagan and the rest of the sell outs to the wealthiest 3% around the world)…
Don’t be so glum as those geniuses will eventually screw thing us so bad that even the most dimwitted, will say “enough” and vote those “Quislings” out of office and just as our Grandparents found in 1932, the “Sun will come out” as we tar and feather those that so sold the 97% down the drain for the gold coin of the 3%…..
The new world order. Well the Japanese investors did not get their financial fix from the BOJ and the Nikkei tanks 624 points. Just goes to prove that the Japanese investors (also the rest of world world for that matter) are bunch of free money junkies and once their fix does not come through they panic and sell. What a world. There is no more business acumen left.
First, there was never a real recovery and we have still been in recession. Unemployment is not at 5% and the true numbers are really around 24%. The stat to look at is the LPR which is around 95 million while welfare has increased from 35 million to 50 million. Many that were laid off are either staying home, quit looking, or went back to school.
The real crisis we are in is a debt, credit, and currency problem. Average household income is down $5000 since Obummer has been in office. Healthcare cost will cripple the middle class while spending in nonexistent for durable goods. Stocks are up due to gov’t intervention, ESF Treasury, Fed, buybacks and etc. Nothing is real and being propped up due to the election and Hitlary.
This will end bad.
Absolute B.S…. Were did you get those talking points? From Unemployed Rush? Any chart will show you that the devastation of the Middle Class and for the matter, the 97% began soon after the Republican Revolution in 1981… Then came the Republican Stock market Crash and Depression of November 2007 under Cheney/bush ….
Now anybody with a dime in an investment or retirement account will tell you that with the exit of Cheney/bush their losses stopped in March 2009 under Obama and their accounts are now at new highs…
And now you claim that somehow Obama is destroying America? Get a clue, dimwit! :(
You really need to do some factual homework before you repeat those distortions…, aye?
Sorry 495
But the sun doesn’t shine on your gloomy world
The sun came out in 1932 and it came out in March 2009 after BOTH Republican Stock Market Crashes and Depressions. Don’t you have a dime invested?
Has anyone heard of the community reinvestment act look it up you will see who really caused the housing crash it was the liberal democrats and yes i finally have to agree Obama and his man wife hate america aye?
Lovely thread. If only things were that simple.Consider:
-Boomers staying in the work force as they have no pensions.
-US has expanded the potential work force, since the 50’s, to include women and minorities. Women, despite glass ceiling, have taken advantage, eg. Medicine, law, from about 4% to current over 50% of MD’s, Lawyers.
-even the middle class and poor have cars, tv’s phones. not just in the US.
– Products, cars, phones, TV;’s are way better, fully featured and dependable than they were, so that there is not much need to replace( US car is over 11 years old).
-Commodities, oil, food, rare minerals are all in oversupply.
– The developed world is old, getting older.
There is more, of course, and not all of these issues are bad, but we are in, going into a very different world than ever. And no economist, indeed no one can know how best to proceed.
Will just have to feel our way along.
len,
It really is that simple….. The Conservatives brought the Stock Market Crashes of 1929 (90% loss- Hoover) and November 2007 (60% loss Cheney/bush)and the Democrats brought both Recoveries in 1932 (FDR) and March 2009 (Obama)….. And in both cases we had to go into deficit spending to recover the economies….. What has made this recovery harder is that the 2007 Crash started with a HUGE deficit that really began under Reagan and followed through to the end of Cheney/bush… Really is that simple…