| | | Some thoughts on the U.S. economy so far this year:
-The impact from the reinstatement of the pre-stimulus tax rates on FICA seem to have had a minimal effect on the economy overall.
-The tax increase has been partially paid for by a reduction in the savings rate.
-The sequester, while subtracting some growth, has been a non-issue for the most part, with a few exceptions.
-Continued expansion of sub-prime auto loans and the firehose-like flood of student loan money floating into the system helped keep retail sales moving. Moreover, increased SNAP participation helped move more money into the hands of consumers.
-Year over year retail sales, while up, are basically treading water adjusted for inflation.
-The dirty secret of the economy is that if you subtract the impact of the energy boom in the Dakotas and Texas, the US might very well be experiencing no growth or even be in recession.
-In past secular bear cycles, inefficiency was culled, non-productive assets liquidated, productivity improved, and bad debt was swiftly moved through the process of either restructuring or liquidation. We've had some of this, but nothing near what we've seen in other cycles. Of course, another way secular cycles ended was through inflation, which is not looking likely here for a number of reasons, with slow population growth the biggie.
I am troubled by the lack of thorough restructuring in the financial system. I also fear the impact of a bond rout on the system. In some ways this seems a little like the 1920-1930 time frame. We had a massive recession in 1921, but the economy bounced back with a roar within a year. However, what few economists mention was how the massive productivity increases in farming combined with the falling commodity prices ended up sending people to cities for work, as the rural income barely budged in that decade. Once the huge U.S. vendor financing programs dried up in 1930, these cities full of people lured by the boom jobs were left hanging. In fact, for the average American, the 1920-1930 time frame was anything but a boom time.
While most believe the New Deal cured the Great Depression, I believe this to be more myth than truth. There were several events that, collectively, drew that period to a close. A few, in no particular order:
-40% Devaluation of the US Dollar via Gold.
-Immigration quotas starting in the early 1930's, slowing the growing pool of labor.
-Banking reform and regulation.
-Lend-Lease.
-WWII, massive war deficit spending, and helping destroy much of the planet's non-US productive capacity. It's much easier to have a competitive advantage in the marketplace when your competitor's capacity is burned to ashes.
My final thoughts are this:
1. In the first 1/3 of the 20th century we had a shift from the farm to the factory as farm productivity soared. That labor was eventually absorbed in the industrialized cities, but it was a multi-decade process.
2. We have been slowly experiencing a similar move, but instead of shifting one type of labor to another, we're shifting one type of labor to automation or software. This has been happening for decades, but the pace has accelerated. Where are these displaced laborers going to land?
3. Healthcare is on the cusp of being turned completely upside down, and I don't mean the ACA.
The biotech revolution that is upon us is about to obliterate the 17% of the US economy that is health care. Cancer will be cured like a common cold. Most viruses will be treated and cured like the common cold. AIDS will practically disappear like Polio did. Heart disease, pulmonary disease, diabetes? All will be easily treatable and go away. Need a new organ? No problem. We'll grow one for you. 20-years from now, if you want to die, you're going to have to really work at it, most likely by accident or suicide.
Now, what's going to happen to this huge infrastructure? Where will all the nurses, doctors, technicians, paper pushers, administrators, suppliers, and other connected parties go? Heck, what's going to happen to health insurers (single payer, methinks). This health care system is going to shrink like the newspaper business.
The current US economic malaise is probably going to be going on much longer than anyone expects. Robots, software, biotech, and slow population growth are going to be the primary reasons methinks. Oh, and I have no idea if or when we get a final "cleansing" event to close out the secular bear cycle started in the year 2000. If we don't get it, we may get what Jeff (famous early SI poster) used to refer to as "Sushi". This meant we'd be turning Japanese ( as in their post 1989 recovery, not like the song from 1980 by The Vapors).
PS: I've tried to stay away from "solutions" like war and inflation to end the current secular cycle. Inflation needs population growth, which we barely have here. War is more software than hardware these days, and with everything so interconnected globally, large scale engagements like we saw a century ago seem antiquated. A few good programers could knock a country off-line for weeks, so why blow stuff up anymore? Cut the power, the transport, and communication, and you're screwed. Throw in a few dams and a nuclear plant or two, and you've screwed up your enemy big time, and it could be done with a few mouse clicks.
Any thoughts folks? I'm interested to hear what you think. |
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