Dear Diary,
First, this flash update. The Dow lost 142 points yesterday, which, in today’s volatile market, is no big deal.
Nevertheless, our proprietary short-term stock market indicator has turned starkly negative, as shown below:
Yes, the near-term outlook is darkening. Our model suggests a MINUS 6.4% return from the stock market over the next 94 days. Take warning.
As to the long-term outlook…
The Longest, Deepest Depression in US History
Yesterday’s good news was that there will be no 25-year recession. “We should be so lucky,” is the way a New Yorker might react. Because the bad news is much worse.
The logic of the “long depression” is simple. Aging populations, debt, zombification – all of which slow growth.
How many old people and zombies do you need before an economy comes to a halt?
Nobody knows. But the drag from debt is observable and calculable.
Over the last three decades, approximately $33 trillion in excess debt has been contracted – above and beyond the traditional ratio to income – in America alone. And growth rates have fallen in half.
That’s because dollars that would otherwise support current spending are instead used to pay for past spending. Our old debts have to be retired with current income.
The money doesn’t disappear, of course. Some goes to creditors who spend it. Some comes back as capital investment, which is a form of spending. But as credit shrinks, generally, so does the economy.
And that brings us to the impossible situation we’re in now.
In order to get back to a healthy ratio – say approximately $1.50 worth of debt for every $1 in income – you’d need to erase all that excess that has already been contracted. In other words, you’d have to take $1 trillion out of the consumer economy every year for the next 33 years.
It would be the longest and deepest depression in US history.
A Credit Crisis, Complete with Howling, Whining, Finger-Pointing
