by Bill Bonner: California:
The Greece of the US Financial Crisis
in The Financial Times yesterday tells Americans they may
face a lost decade, like the Japanese in the 90s.
had a lost weekend or two. But how can you lose a whole decade?
have done it already. Read on
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.
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. Weve got our story. And were sticking
to it until the facts prove were wrong. Even then, we might
not give it up.
Our story is
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
public debt. Beyond that, were 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?
of course, which has been in a Great Correction for 20 years.
And even though
the peak of credit in the US wasnt hit until 2007 were
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 didnt 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. Weve already lost a decade.
lost decade is coming up.
Yes, just look
at page 20 of yesterdays International Herald Tribune:
unemployment lines in US cities could last years, study finds
And then the
says may areas will need until 2020 to reach pre-recession levels.
Yes, dear reader
One lost decade already completed. Another coming up.
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 didnt 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 arent throwing out their junk in Anne
Arundel County. So, the fellow at the gate checks your drivers
license to see where you live. Pretty soon, hell be issued
our papers were not in order. Our license shows a Baltimore City
address. But it didnt seem to matter, because the guy checking
our documents was probably illiterate.
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.
Its 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!
do that with solar power
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 cant
figure out at this hour, the law of conservation of energy doesnt
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.
in the US peaked in 1997. Real US GDP peaked a few years later.
Since then, its been downhill for the economy.
GPD didnt hit 10 trillion dollars until about 2000. Now, its
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 couldnt really afford.
Or to look at it another way, it drew on earnings that hadnt
and maybe never would.
But how much
of that $4 trillion worth of GDP is real and how much is phony?
We dont 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.
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
with permission from the Daily
Bonner is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
The New Empire of Debt: The Rise Of An Epic Financial Crisis
and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets (Wiley, 2007). His
latest book is Dice
Have No Memory.
Since 1999, Bill has been a daily contributor and the driving force
behind The Daily Reckoning.
© 2011 Daily Reckoning
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