Some things in life are bad
They can really make you mad
Other things just make you swear and curse
When you’re chewing on life’s gristle
Don’t grumble, give a whistle
And this’ll help things turn out for the best
And always look on the bright side of life
Always look on the light side of life
- Monty Python
Today, we continue our showdown with Gary Shilling, John Mauldin, Justice Litle, and others.
On the one side, people who are looking on the bright side.
On the other, your editor.
On one side is a group of people – bright, well-meaning, with facts and logic on their side. They say the US is heading to another period of prosperity, led by better demographics and more energy.
On the other is your rogue economist with his own view. He thinks the US is heading to a zombie apocalypse led by the Pentagon, the US Congress, parasites and conniving crony industries coast to coast.
Who’s right? Perhaps this is a good place to ‘fess up and admit that we were completely wrong about the trend we saw developing in late August. So far at least, stocks are still going up, gold is still going down – the exact opposite of what we saw.
Will these trends continue? Or is Mr Market merely messing with our minds, waiting for us to drop our guard before he makes his move?
We don’t know.
Today could be a big day. The Fed governors are getting together to discuss their next policy move. On the table is the much discussed ‘tapering off’. Only, there is no way Ben Bernanke is going to begin a real tapering exercise in the last months of his term. Even the mention of taper could send world stock markets crashing. Why take the chance? Better to delay, procrastinate, buy time and make it someone else’s problem.
But you never know. So we leave our ‘crash alert’ flag up – as a warning, not a prediction.
Bill Bonner on markets, economics & the madness of crowds
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Your editor, by the way, gave Barack Obama a chance. He announced his willingness to serve the United States of America as chief of the Federal Reserve. One way or another, mainlining beaucoup credit by the Fed has got to stop. And when it does, there’s going to be Hell to pay.
No economist with a reputation to protect will be willing to do it. Instead, whether it’s a Yellen or a Kohn, he’ll waffle and hedge, fudge and prevaricate until the whole Titanic hits an iceberg.
Not so with the rogue economist at the helm of the Fed. We’ll take our hands off the wheel, and let Mr Market have his way. The results will be breathtakingly horrible as investors panic, the economy sinks and the zombies are flushed out to sea.
But it will only last for a few months. Then, serious business people and investors will wash ashore and can begin rebuilding on a much firmer footing.
So far, the commander in chief has resisted the temptation to pick up the phone.
Hey Barack. One call and your financial troubles are over. With the rogue economist on the case, your worries about a soft recovery will soon be history. Heh heh. But that’s a story for another day.
Our story for today is one where one group of economists have become optimists. They see the glass half full. The other comes along and drinks it. Bottoms up!
Yes, dear reader, here’s Gary Shilling with more reasons that the US economy will be a world leader in the years ahead:
Americans have little choice but to save more. They no longer trust their stock portfolios as they did in the 1980s and 1990s to substitute for saving out of current income to educate their kids and finance early retirement. The nosedive in house prices after heavy cash-out refinancing of mortgages and home equity loans has removed much of the home equity they earlier used to finance oversized spending. The postwar babies have been notoriously poor savers and desperately need to keep working and save much more for their old age.
As the saving rate rises, spending will grow more slowly, the reverse of what occurred when the saving rate slid from 12% in the early 1980s to 1%. That drove consumer spending growth about a half-percentage point per year faster than after-tax income and fueled the domestic economy.
Now, that’s looking on the bright side! For the last 30 years, America’s prosperity has been floated on a rising tide of debt. US households now have to face reality, says Shilling. He could say that their standards of living must decline – as they are forced to pay for things they consumed years ago. Or he could say that the US economy will remain locked in the doldrums, or that fewer people will find jobs.
But no. Gary takes those lemons and makes a truly disgusting concoction.
US savers will now be socking away about $1. 2trn a year, he estimates. Hooray! But wait. Where will that money go? To funding federal deficits! Think about that, dear reader. Instead of wasting foreigners’ money on their zombie wars and leachy giveaway programmes, the feds are going to spend the savings of the American public.
Hey, if this is the glass half full, give it to us empty!
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