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Guest Post: Economic Megatrends That Will Drive Our Future

Tyler Durden's picture


Submitted by Jeff Harding, of The Daily Capitalist

We are plunged deep into the biggest credit-business cycle in world history. Many cycles have been worldwide, but this one dwarfs all others, including the Great Depression. An ocean of money and credit flooded every corner of the globe. The culture of easy wealth worked its way into the smallest economies from Norway to Chile, from Iceland to Mongolia. Economies built on commodities exports, even energy exporters, have felt its impact. The inevitable bust sent the world into economic decline wiping out trillions of dollars of wealth. Built largely on credit, the resulting debt is now being liquidated causing worldwide deflation.

Business and credit cycles are always created by central banks and this one is no different. While we can blame the greed of Wall Street and London’s City, capitalists are just players on a stage where greed always exists. It takes something more than greed to create massive cycles like these, and that something is the creation of money and credit out of thin air, something only central banks and governments can do.

The question we face now is: how has the playing field for our economy changed and how will those changes affect our future? The answer to these questions will determine the future of the world’s economies.

The economic world has changed. There are new trends, megatrends if you will, now at work in our economy. They are “mega“ trends because they overarch and impact everything else in the economy and will do so for quite a while. There are other major trends at work as well, but they have been operating as a part of the basic framework of our economy for decades. These megatrends have emerged from the credit cycle because people change their behaviors in response to a crisis, and it would be foolish to assume that everything will just go back to the way things were before.

These aren’t predictions of the future, because circumstances change. No economist can accurately predict the future, at least in the detail many economists claim they can do. There is just too much data from the millions of decisions that our fellow citizens make every day to know enough to predict with any accuracy. How many economists predicted this crisis? Very, very few. Think of these megatrends more as chalk marks on the playing field that will guide human economic behavior for some years.

Megatrend No.1. The culture of consumption is broken and won’t return to former levels. This is the key to everything.

For the last 30 years our economy has been based on personal consumption. From 1980 to 2007, personal consumption went from 54.4% of GDP to 77.3%. We went on a spending spree financed by borrowing, reduced savings, and asset inflation. Most obvious was the rapid rise in home prices. We came to think of our homes as an ATM, and kept pushing those buttons. We felt rich: our homes appreciated, our 401(k)s appreciated, and, who needs savings?

From the high of 2007 our net worth has plunged 20% (nominal), from $62.591 trillion to $50.377 trillion as of Q1 2009. Down $12 trillion, or about equal to one year’s GDP. That has dire implications for consumer spending. During the boom, debt as a percentage of spendable income went from 68% in 1980 to 138% in 2007. We are now in the process of paying it back. And, since our main assets, homes and stocks, have declined, the bank wants its money back.

There is nothing like fear and an uncertain future to prompt people to save. As the savings rate has increased, consumer credit continues to decline, wages are decreasing, and unemployment is rising. It will take consumers a long time to reduce their debt. If incomes don’t grow from current levels, it will take a savings rate of 5% to achieve a 5% annual reduction in the household debt-to-income ratio, according to a McKinsey Global Institute study. At this rate it would take about 7 years for this ratio to return to levels seen in 2000 (101% then, vs.138% today). If incomes grow by 2%, then it would take a savings rate of 2.3% to achieve a 5% reduction in the ratio. Every percentage point of savings reduces consumption by about $100 billion per year.

This doesn’t mean people won’t spend; it means they will spend less and save more. In an economy of which 70+% is based on consumption, this represents massive change. It means that GDP will remain subdued for a substantial period of time.

The one caveat? Inflation would tend to result in quicker debt paydowns as old debt would be cheaper to pay off with inflated dollars. Inflation would cause people to buy things as they dump depreciating dollars for appreciating goods. But inflation has its own problems.

Megatrend No. 2.
Consumers will continue to increase savings to prepare for retirement.

Boomers are facing retirement and they aren’t ready. In fact, about two-thirds of Boomers are unprepared according to another McKinsey report. The definition of “prepared” is having enough income to cover about 80% of pre-retirement spending. This is significant because Boomers are 70 million strong, the largest population group in the U.S.

Since they entered the economy in the 1960s, Boomers have driven GDP to new heights, have had the highest incomes, and have accumulated the most assets. But the one thing they haven’t done is still save enough for retirement. This has two important impacts. (1) They will work longer to (2) accumulate savings in order to retire. While their continued participation in the economy will be a positive, the fact that they will restrict spending in order to save is a negative for an economy based on consumption.

Also, as Boomers retire over the next five to seven years, even assuming they continue to work a couple more years, a large percentage, up to 40%, will still not have sufficient savings for retirement. This has two negative impacts to the economy and consumer spending. First, by reducing their participation in the economy, GDP will go down. It’s obvious that the more people in the workforce, the greater economic activity there will be. Second, this large group won’t be spending as much during retirement.

There is one dirty little secret at the heart of most Baby Boomers: their think their parents are going to leave them a lot of money. Perhaps. But only a small percentage of Americans ever receive an inheritance. According to one study, only about 7 percent of the population will ever inherit money - typically less than $25,000. Mom and Dad are living longer and medical and nursing home costs are eating up their assets. Only 1.6 percent of Boomers will inherit more than $100,000, and they tend to already be successful in their own right.

Don’t expect spending levels to stay at 70% of GDP. I don’t know what it will be, but if I were to guess, I would say it would fall off to about 66% to 67%. We’ll all have to adjust to this new reality.

Megatrend No. 3.
Declining U.S. consumer demand will continue to negatively impact the world economy.

The developing economies of the world live off of demand from developed nations. Most of them have not created enough wealth to generate sufficient internal demand for consumer goods to drive their economies. While their domestic sectors are increasing, they are still dependent on developed nations. If U.S. consumption continues to decline, the countries that ship goods to us will suffer unless they can find new markets, including domestic markets.

China’s economy is based on exports and the U.S. is its biggest trade partner. For the tenth month in a row, exports have declined (23% YoY in August). China’s recent economic gains are either fictitious or a temporary result of government fiscal stimulus. They are facing huge unemployment and dislocation of their workforce. Some estimates put China’s unemployment levels at 24 million. China has engaged in massive Keynesian fiscal stimulus mostly aimed at public infrastructure. These expenditures are about 14% of their GDP ($575 billion) but, with falling exports, it is unlikely that they can sustain growth. It appears they are just creating another stock and property bubble.

We know that economic reports coming from China are mostly numbers manufactured by Beijing. I would assume that unemployment is higher. We take for granted that China will continue to grow and become a leader in driving the global economy, and I believe that will be so. But with 36% of their economy based on domestic consumption, they have a long way to go before they are world economic leaders.

Megatrend No. 4. Deflation will continue for some time.

Deflation occurs where there is a demand for cash because of economic or political uncertainty, or where the demand for money exceeds the existing money supply at any given moment. Both factors are operating right now. This is reflected in the economy by falling prices, such as with real estate. Also the money supply is contracting despite the efforts of the Fed. People are holding on to their cash. Keynes referred to this as “hoarding” a pejorative term that suggests that people are too stupid to handle their own affairs and that they should go out and spend to help stimulate demand. As we’ve shown before, deflation is the necessary healing process of any credit cycle boom and saving is a logical response to uncertainty.

There is a lot of talk about inflation, but you can’t just look at the Consumer Price Index for guidance because it doesn’t include housing as a price component. Housing prices and commercial real estate are the main asset classes now being deflated because of all the debt incurred to buy real estate or finance consumption. Wages and work hours are also decreasing, and we have all seen the decline in the prices of many consumer goods. Consumer credit continues to collapse as July marked six months of decline in a row, down 10% this year. Banks continue to tighten credit as well. Money supply, from M1 to MZM, is declining. This is an international trend playing itself out in just about every country. The Fed cannot stop declining asset prices.

It’s not over. Real estate prices will continue to decline, although it is clear that we are starting to find a bottom in residential real estate. The current devaluation of commercial real estate is just starting. I believe many more banks will go under during this phase of deflation. Credit card debt and student loans are another problem area and debt reduction and bankruptcies will continue to put downward pressure on prices.

Yes, at some point it is likely that credit will expand again, and then we’ll see inflation. But banks will continue to hold on to their reserves until they see that they won’t lose money making loans.

Megatrend No. 5.
Home ownership rates will decline to more historical levels of, say, around 66%, down from the high of 69% during the boom, which will keep a lid on home prices.

Every time the housing market goes through a cycle, we are reminded by the housing industry that long term demographic trends favor the construction of millions of new homes. It would be foolish to argue the basic logic of this premise, but in the short term it never works that way. People do buy homes because of the build-your-nest syndrome. But they also make economic decisions based on the perceived risk versus reward of buying a home. Potential buyers have now learned a valuable lesson. While they were told home prices would never decline year-over-year, and that such declines hadn’t occurred since the 1930s, they are painfully aware that it is happening now. This changes people’s perception of the economic benefits of home ownership.

From 1970 to 1995 home ownership rates were about 64% to 65% of American families. Starting in 1995 they shot up reaching a high of more than 69% in 2004 and 2005. We know the reasons for that (cheap money and cheap credit), but I don’t see that scenario repeating itself for some years. Also there is the fact that the number of buyers who were “investing” in homes was as high as 24% of all sales late in the cycle. This won’t repeat itself either, barring a massive reinflation of the housing market.

While home prices are declining, I think buyers will continue to enter the market seeking bargains and eventually the market will find a bottom, but I believe the “home-as-an-investment” concept has been shaken off of its pillar and that this trend will reduce the rate of homeownership to more historic levels. This will dampen the market for home builders, reduce construction industry jobs, and squeeze profit margins for an industry that was once about 3% of GDP.

Megatrend No. 6. Government stimulus and recovery programs only delay recovery and deepen the pain for workers.

There has never been an example where Keynesian government spending created real growth in an economy, anywhere. We know that government spending through fiscal stimulus has only been about $100 billion so far, not sufficient by Keynesian standards to help a $12 trillion economy recover. So despite what the Obama Administration says, they can’t claim stimulus is working. For example, Cash for Clunkers just “borrowed” against future sales and the effect will wear off. The end result of stimulus is massively increased national debt.

I have challenged Keynesians to point out an example where Keynesian stimulus has worked and I have not had a response nor have I seen any data that would support their premise. Japan is the classic example where most of the suggested Keynesian remedies were tried and failed miserably. The result was economic stagnation from 1990 to 2003. And, they are doing the same things again in this crisis. The result for Japan has been continuous, sluggish GDP growth – an average of only 0.6% a year since 1991.

What these stimulus programs do is confiscate money from some people and give it to others to spend on things the government deems worthwhile. You can see for yourself what these programs are by going to, the government’s web site itemizing expenditures under the American Recovery and Reinvestment Act. Much of it is just a waste of money. And, once the money runs out the so-called economic boost will end because the government doesn’t create wealth, it just spends it.

We’re now two years into this crisis and people are running out of unemployment benefits. Please compare the recession of 1920 and 1921 to the recession-turned-into-a-depression of 1929-1948. Harding and Coolidge basically did nothing and the economy recovered from a worse crash than 1929. Yet the meddlesome policies of Hoover and FDR turned an ordinary recession into a massive depression. Politicians never learn.

Megatrend No. 7.
Massive federal deficits will double the national debt, result in higher taxes, and will act as a permanent drag on the economy.

The Administration just announced that the deficit over the next 10 years will be up another $2 trillion to $9.14 trillion which will push the true national debt to about $25 trillion by 2019. This is double the current national debt and it will have negative economic implications. Even if the debt is increasingly financed by U.S. savers, massive federal borrowing will put downward pressure on the dollar threatening its status as an international reserve currency, which in turn will drive up interest rates, and drive up the cost of capital for private borrowers (“crowding out”). This means that it will be more difficult to finance business which inhibits the  creation of wealth and jobs.

The costs of Obamacare have been seriously underestimated. As I have pointed out, studies of national health care systems around the world reveal that they have always exceeded cost estimates and our system, whatever form it takes, will be no different. Newly disclosed documents reveal that the Johnson Administration knew that Medicare cost estimates given to the public were a lie, but LBJ was afraid it wouldn’t get past Congress if the true costs were known. Medicare will probably not be reformed as a part of this bill, and it is seriously underfunded. Medicare alone will need vast injections of taxpayer dollars.

It is obvious where the money will come from to pay the debt. I doubt the debt will be entirely funded by monetization (printing dollars). It would worsen the problem and lead to high inflation and Obama’s advisers know this. The money will come from new taxes on middle income and upper income taxpayers. It can’t be paid by upper income taxpayers alone; there just aren’t enough of them. Obama won’t raise “middle class” taxes or he will break an obvious campaign promise. I believe that we will see a new, more politically acceptable, tax, a national sales tax like the European VAT (value added tax). On last Thursday’s Town Hall meeting with Treasury secretary Tim Geithner, Geithner almost admitted that higher taxes were coming. I guarantee that they will.

When the a non-wealth creating entity like the federal government takes that much capital out of the economy, it will slow economic growth as interest rates rise and capital sources are diminished.

* * * * *

Where does all this lead?

All cycles eventually bottom out and growth resumes. The timing of any recovery is impossible to predict and for the most part it depends on what the government will do (or, hopefully, not do). The more the government interferes with the recovery process by propping up bankrupt banks, by manipulating the economy with fiscal and monetary stimulus, by creating a huge national debt, and by increasing taxes, the longer it will take.

With commercial real estate in serious decline, deflation will continue, and we’ll see more bank failures. While we may see a “bump” in GDP in Q3 and Q4, the liquidation of commercial real estate assets and other debt will accelerate. At some point, deflation will stop, and asset prices will find a bottom, as housing is starting to do now. My view is that the post-deflation economy will remain sluggish with high unemployment for some time. I believe that, unlike Japan, we will eventually see inflation.

There are significant differences between our economy and Japan’s and the comparison to Japan in the 1990s may not be entirely applicable here. The Japanese were reluctant to let banks and companies fail, but, despite a few notable exceptions, we aren’t. This is a necessary requirement for recovery, and we are better at “creative destruction” than are the Japanese. Also, we have a more dynamic culture of entrepreneurship than Japan, making us more responsive to a recovery. However, the main difference is that Japan’s debt was largely financed internally due to their very high savings rate in the 1990s (about 14%). While our savings rate will continue to grow, I do not believe it will keep up with rising federal deficits, and we will need to finance our national debt on the international markets. This will drive interest rates up and put pressure on the dollar.

Then I believe inflation will assert itself as banks renew the lending cycle. I believe the Fed will maintain its loose monetary policy in order to keep interest rates down to stimulate growth. Governments always find it expedient to create inflation to give people the impression that the economy is growing. The problem is that inflation will depress the formation of real savings necessary to finance growth, and like the 1970s, we’ll see stagnation and inflation (”Stagflation”). If inflation gets out of hand, then, for a while we may see price and wage controls.

After that, who knows? Cut the money supply as Paul Volker did, and drive up interest rates and bring on a new recession? Continue to inflate? That’s too far in the future and politicians don’t think that far ahead.


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Tue, 09/15/2009 - 19:20 | 70469 Anonymous
Anonymous's picture

All of this makes sense. Its just that most people don;t realize it and are in for a rude awakening, the kind that occurs after a really really long slumber.

Wed, 09/16/2009 - 06:50 | 70874 Spartacus
Spartacus's picture

By postponing companies’ debts today, European banks may simply delay a more drastic debt restructuring in two to three years’ time, said Craig Abouchar, who helps manage $2.2 billion of high-yield debt at Axial Investment Management Ltd. in London.

“Everybody continues to close their eyes because it’s too painful to address the problem today,” Abouchar said. “A lot of these lender-led restructurings are going to be zombies; the companies won’t have the cash or flexibility to invest in the business.”

Tue, 09/15/2009 - 19:22 | 70472 McGriffen
McGriffen's picture

That's what I'd call a steak & potatoes posting...lots of good & wholesome information contained therein.  Good stuff to chew on at dinner time..

Tue, 09/15/2009 - 19:24 | 70474 Sqworl
Sqworl's picture

Brilliant..TD + Infinity...

Wed, 09/16/2009 - 00:07 | 70745 molecool
molecool's picture

TD didn't write this - the author is Jeff Harding.

Tue, 09/15/2009 - 19:25 | 70475 Anonymous
Anonymous's picture

No shit.

Tue, 09/15/2009 - 19:26 | 70476 Anonymous
Anonymous's picture

Think Locally,

Fuck Globally

Tue, 09/15/2009 - 20:03 | 70513 Anonymous
Anonymous's picture

I live in Argentina and let me tell you, that is the plan.

Tue, 09/15/2009 - 19:30 | 70482 Anonymous
Anonymous's picture

The problem is fraud. The system requires fraud to run. The proles will never have anything and always be poor even when rich. Regardless of depression or boom, the vast majority of people have negative equity and those that do not, do not have enough savings to survive more than a month. Megatrend 2, is not true and is absurd. At no time in history, have even a small percentage of people in old age, been self sufficient. This will not change. The rest of the article suffers from similar problems. But, the premise of economic doom is very enjoyable.

The real key for the proles, is not to realise their strength in numbers, but limit their purchase of land to what's needed. This, will force the crown to be unable to control the proles through numbers and paper.

Tue, 09/15/2009 - 20:37 | 70538 cougar_w
cougar_w's picture

[The problem is fraud]

It's a fraud that's been running for 90 years. It really took off in the last 20 years because anyone who still remembered pre-fraud days was finally dead.

It's like living in the "matrix"; you don't even know you are inside something, you have no reference for "outside". You don't even know what anything real looks like.

You won't educate people out of this nightmare. I think that people will wake up when they are starving, or wracked with disease. The fraud has gone far enough now that "negative equity" is going to mean "one meal a day" for a lot of people, and measuring the future in months, not years. Then measuring it in weeks.

Then, the game will be over. Then, we'll see.


Tue, 09/15/2009 - 22:52 | 70693 Anonymous
Anonymous's picture

OP here.

By the time people have one meal a day, if that happens, it is too late. They will not learn a thing and just think, ‘that’s the way it is.’ Also, given time, history will be re-written or re- represented or shown differently (including omissions) to make it seem like things have always been such. In that way, it is like a matrix but it’s not that matrix which hold the proles, it’s the submission of the proles to the matrix due to perception and the forever changing but constant ‘that’s the way it is,’ mentality. Proles can’t free themselves because they cannot accept non-submission ‘to the system.’

Anarchy is organisation, thus there is no freedom. Even the question of free choice can be seriously debated. Thus, an intelligent question (in the free choice tense) is if society will reconstruct itself to be peaceful and beneficial to ourselves.

Wed, 09/16/2009 - 02:22 | 70826 loki
loki's picture

It's like living in the "matrix"

This is *exactly* what I wrote in a different post/different article.

I keep praying we'll find a "Neo"  who can figure it out but I doubt it.  Worker drones just too busy working to understand it.

We truly are fucked.

Wed, 09/16/2009 - 04:30 | 70859 Anonymous
Anonymous's picture

we may be fucked but it isn't because we are
loaded down with too many worker drones....

it is because the small number who may have
better light on the subject refuse to act....

change does not require the masses - only the
enlightened self interest of the few....

Tue, 09/15/2009 - 19:34 | 70485 Anonymous
Anonymous's picture

One of the best articles I have read in months.


Tue, 09/15/2009 - 19:36 | 70486 Anonymous
Anonymous's picture

This sure took a long time to be made public!

Tue, 09/15/2009 - 19:40 | 70492 savara
savara's picture

Good work !

Tue, 09/15/2009 - 19:41 | 70494 NRGTDR
NRGTDR's picture

Megatrend No. 8: Scarcity of Resources pressure nations to compete for survival

Food, water, energy.


Speaking of food, The autos I get and not sure about chemicals, but I found this jump in rail traffic for food very interesting

(any ideas?):


PS. Don’t see much of a “recovery is likely over” in this data either

Tue, 09/15/2009 - 20:46 | 70549 Silver Bullet
Silver Bullet's picture

Mega trend no. 8 is bad fucking news.

Tue, 09/15/2009 - 20:50 | 70554 cougar_w
cougar_w's picture

I nearly made this same post, then backed out.

That kind of observation is like seeing the other side of the moon; folks here won't recognize it.

The myth is that we cleverly built up this economy for 100 years. We didn't, at least not cleverly. The economy was fueled by cheap oil, lax environmental regulations, cheap labor, and corruption. Cleverness had little to do with it.

The economy is like a wolf wrapped around a nightmare encompassing a demon. We've sown our seeds on the wind, now we're reaping the whirlwind.

My main worry is that we added over 5 billion people in the last 40 years, and over the next 20 years we will likely lose them. How they will leave the world I cannot guess, but not one will go out as easily as they came in.

The demon is coming for us. Be nimble.


Tue, 09/15/2009 - 21:14 | 70573 Terminal Frost
Terminal Frost's picture


Tue, 09/15/2009 - 22:07 | 70641 Miles Kendig
Miles Kendig's picture


Wed, 09/16/2009 - 01:19 | 70795 MsCreant
MsCreant's picture

While we scurry around crying about how dishonest they have been, mother earth has her own ideas about how to balance this mess, eh? She is not biased but I do so hope she gets a couple of these bastards, good.

Wed, 09/16/2009 - 09:59 | 70965 I am a Man I am...
I am a Man I am Forty's picture

If 5 billion people leave this planet it will be for one reason and one reason only, and that reason is governments.  Here in the US, we have plenty of food, water, and land.  A ton of untapped oil resources and so much natural gas it is at an 8 year low.  Not to mention wind and solar energy.  

Just looked out my window, didn't see any demons, but thanks for the heads up.

Tue, 09/15/2009 - 22:40 | 70686 Cursive
Cursive's picture

What are you saying?  Red except for chemicals and food and that positive change was year over year.  These two are basics for households.  Nothing I saw supports a recovery.

Wed, 09/16/2009 - 02:34 | 70832 Anonymous
Anonymous's picture

"I found this jump in rail traffic for food very interesting

(any ideas?)"

Possibly seasonal and/or restocking - Christmas? Note also that it's down 1.5% over 2007.

Interesting also is the increase in chemicals up 10.1% on 2008; but does the fact that its off 1.2% on 2007 indicate that it is restocking?

So I think further analysis would conclude seasonal<->restocking as the explanation in both cases.

Wed, 09/16/2009 - 13:25 | 71272 Anonymous
Anonymous's picture

Very much agree: specifically the author's statement that "growth always resumes" is not realistic. All modern economic "growth" has been fueled by increasingly cheap energy - you can't get something for nothing. Soon, when it is no longer economically feasible to get oil out of the ground at the rate it's desired, "growth" will cease, since it's only one side of the equation.

Tue, 09/15/2009 - 19:40 | 70495 Daedal
Daedal's picture

'Home as an investment' has not  yet been shaken off as a pillar, which is why people are still seeking to get 'deals' on houses. Once these people see that their returns are paltry and/or negative on their 'investment' only then will their lesson be learned. There are still many people that didn't get burned in the past 10 years that will try to capitalize, but they don't realize that the bubble won't get re-inflated. I see the same people seeking new mortgages and re-entering their 401k only now. Many kids whose parents are still employed continue to shop for pointless clothing at the mall. Point being, there's still many people out there who have not learned from others, and will be re-taught this valuable lesson soon.

There's a saying, it takes a smart person to learn from his mistakes. But it takes a wise person to learn from other people's mistakes. Few people are smart, but far less are wise. I agree with your premise, but disagree that many people have learned their lesson... only first hand experience will solidify these trends in a large part of the remaining frivolous spenders and borrowers.

Tue, 09/15/2009 - 23:49 | 70722 percolator
percolator's picture

Daedal, I agree about "Home as an investment has not yet been shaken off as a pillar". 

I'm renting a condo in Vegas which were apartments converted at the peak, most of the units were bought as investments and a good percentage have since been foreclosed on.  Now there is a new wave of investors buying up all the units thinking that at 75% off the peak they're getting a great deal and will make a killing.  I just wish them luck!  

Wed, 09/16/2009 - 03:39 | 70846 Anonymous
Anonymous's picture


I stole this for my FB status lol

Tue, 09/15/2009 - 19:41 | 70496 Zippyin Annapolis
Zippyin Annapolis's picture

Throw in demographics and you have a very good view of the future--

Tue, 09/15/2009 - 20:01 | 70510 Anonymous
Anonymous's picture

your tax dollars hard at work to save our economy. Aspen gets $4million for their private jet parking lot to be smoother.

Tue, 09/15/2009 - 20:01 | 70511 Anonymous
Anonymous's picture


Tue, 09/15/2009 - 20:18 | 70530 Anonymous
Anonymous's picture

Great post, kind of lays to rest the relentless posting about Inflation V Deflation on so many blogs etc

Tue, 09/15/2009 - 20:25 | 70533 mule65
mule65's picture


Tue, 09/15/2009 - 20:55 | 70556 cougar_w
cougar_w's picture

"We are plunged deep into the biggest credit-business cycle in world history. Most everyone is boned, or will be. After that, who knows?"

Is that better?  ;)


Tue, 09/15/2009 - 20:27 | 70535 Anonymous
Anonymous's picture

Faulty basic assumption that the system will survive.

It is too far corrupted, it is too far saddled with debt, it is overpromised and underfunded.

There will be higher taxes, until taxes don't suffice. There will be currency devaluation until a crisis or collapse. There will be cascading defaults at sovereign levels.

Whether nations slip to protectionism and autarky, or can recreate a better, more lawful, less corrupt system remains to be seen.

Failure inevitably leads to war.

The USA is in its empire's decline. Empires are bloodiest in their inception and demise. Revolution occurs at both endpoints.

Tue, 09/15/2009 - 20:39 | 70540 Anonymous
Anonymous's picture

1. Not quite true. Consumption culture is driven by the confluence of advertising and information immersion, a trend that will continue to grow as technology is developed and the Internet becomes more immersive. Consumption in aggregate (not the culture of consumption) will of course languish until new wealth redistribution mechanisms arise (if ever).

2. Yes, in the short term, but as a megatrend, as if American consumers will be frugal for the next several decades? Yeah right.

3. True, except for the few developing countries who understand how to manage an economy. On paper, overcapacity is a simple problem for a government to intervene in the economy and solve.

4. Yes, probably, but for how long?

5. Yes, maybe even less.

6. Yes, but not for the reasons the author thinks. When the government inevitably engages with another "Keynesian" stimulus plan, it will overwhelmingly benefit those who have bought and paid for our legislators, or those at the top of the economy, when what is needed is to concentrate massively on the bottom of the economy. But when the author starts off a paragraph with "There has never been an example where Keynesian government spending created real growth in an economy, anywhere," that's your cue that the rest isn't worth reading.

7. Maybe, but it won't necessarily act as a "permanent drag" on the economy. The government isn't some kind of black hole that sucks up wealth. Rather, it's a part of the economic whole.

Overall, I give the article a C-. Next time cut out the unintellectual market-worshipping cyclic fatalism drivel.

Tue, 09/15/2009 - 22:35 | 70676 Anonymous
Anonymous's picture

Excellent review. I give the original author a D-.

Tue, 09/15/2009 - 23:51 | 70726 E pluribus unum
E pluribus unum's picture

The suthor lost me when he said that "The culture of consumption is dead" yet millions of unemployed people stand for hours in line to get the latest i-Phone.



Wed, 09/16/2009 - 02:25 | 70827 loki
loki's picture

zero sum

Buy iphone.

Cut back elsewhere.

Wed, 09/16/2009 - 06:45 | 70872 Sardonicus
Sardonicus's picture

I still use a rotary phone.



Wed, 09/16/2009 - 10:26 | 71002 I am a Man I am...
I am a Man I am Forty's picture

So you have like a physical phone list and an address book?  No way.  Stop it.  You are having fun with us.  The fact that you are on a computer gives yourself away.


Wed, 09/16/2009 - 12:55 | 71223 loki
loki's picture

I wish I had one...

Wed, 09/16/2009 - 01:25 | 70800 defender
defender's picture

1.  Way off on that.  Consumption culture is driven by lack of consequences for the consumer and enabling by the corporations.  While corporations, being by definition lawful evil, will continue to hand out debt like candy, the consumer will be much more leery of the fire once they have been burned.

2. Same conclusion as 1.  The children of today that suddenly find themselves homeless, jobless, and foodless won't ever get over it.

3.  I am undecided on this one

4. & 5. Completely agree with you.

6.  I think that both you and the author have valid points on this one.  The proles will be told to bend over, and then they will be told that they have to pay for the experience.  Discouragingly typical of our current system.

7.  The US population is about 300 million.  The US debt is somewhere north of $11 trillion.  At 3% interest this works out to each person having to pay $1100.  Or to look at it in a more reasonable light, since there are about 132 million jobs, americans will have to pay $2500 per job.  On interest.  This year.

This is one sixth of the total income of a minimum wage earner that goes to interest alone ($7.25/hr or $15K per year).  And this is supposed to double?  What happens when the interest rates go up?  Once again, Nero fiddles while Rome burns.

If anyone has more accurate numbers, Please post them. 

Thu, 09/17/2009 - 10:06 | 72257 Anonymous
Anonymous's picture

We do not need to borrow to finance government spending. We should not be borrowing to finance government spending. At some point economists will take macro econ 202 seriously and they will remember that private savings = public debt by definition.

Tue, 12/22/2009 - 10:58 | 171568 Anonymous
Anonymous's picture

Brilliant rebuttal dude.. I too am sick of the free market is god crowd who frowns upon someone at the lower end of the economy getting a few months of unemployment assistance yet turn their eyes away from the favor they gain from politicians

Tue, 09/15/2009 - 20:40 | 70541 Anonymous
Anonymous's picture

you really don't need that many words to say what you need to say.

We the people borrow and spend too much, and we cannot pay for it (housing, credit cards and cars and all the shit like that). The banks lent out the money to the people, and cannot collect the money back. That's why they fucked themselves up. Our beloved government borrow more to pay the debt we the people cannot pay. There is too much borrowing. Eventually, our beloved government will fuck itself up.

The real shitty thing is that when I get to collect my social security and medicare, they may not have anything left for me. I have been paying the shit for all my life.

as for the healthcare, go to a local hospital and ask for a visit in the floor, see how many 20 yo patients there. How can you cut the waste when everyone there needs medical help? The country is getting older by days, and they get sick when they get old.

Wed, 09/16/2009 - 10:41 | 71021 Anonymous
Anonymous's picture

It depends on how old you are, but if you are < 45, you WILL be paying for this shit without anything to show for it. Unfortunately, best case, if we get someone in office who can sort this mess out, it will be a multi-generational timeframe to clear ...

Tue, 09/15/2009 - 21:34 | 70604 Virginian
Virginian's picture

With all the currency debasement Ben Wa has been able to accomplish over such a short period of time, the dramatic effects of a tanked dollar will show up on our doorstep as a hyperinflationary hurricane.  The Weimar Republic of the 21st century is being born as we speak!

The only chance for deflation is the abolition of the Fed and a return to sound money.  Period.

Tue, 09/15/2009 - 21:53 | 70626 bugs_
bugs_'s picture

Yes megatrend 2 is BS.  Whatever they save for retirement

will be stolen, has already been stolen, or will be taxed

away (i.e. stolen).  A lot of people are already aware of

this and have curtailed their 401k contributions.

Tue, 09/15/2009 - 21:57 | 70634 Anonymous
Anonymous's picture

People should step back and look at the history of the world.

The idea that we would create a super-race with a life expectancy of 200 and have a population of say, 12billion, all living with a slice of the pie is a bit much to ask.

The rude awakening for the pampered generation is upon us!

Tue, 09/15/2009 - 22:14 | 70650 Anonymous
Anonymous's picture

In the 1970's there were labor unions to set wage standards, especially "cost of living" adjustments. With the destruction of unions and the out sourcing of labor, there is no longer a way to cycle money to labor (the consumer). I would not expect to see general inflation which depends on both wage and price increases.

Instead we may see spot inflation where those with cash can choose to speculate, i.e. gold. But without economically healthy consumers there will even be a severe long term contraction in upper and upper middle class incomes.

The most protected and prosperous will be the educated government worker, whose prosperity is protected by the force of arms.

Tue, 09/15/2009 - 22:28 | 70666 deadhead
deadhead's picture

Mr. Harding: a thoughtful, well reasoned, and detailed piece.  Thank you.

Tue, 09/15/2009 - 22:30 | 70669 Edward King
Edward King's picture

Baby boomers remaining in the labor pool beyond the time that they should be retiring is a recipe for social unrest. Younger people will be stuck in place (whether that is middle management, lower management, entry level, or unemployed) as the baby boomers take beyond their turn. Businesses structured as partnerships (consulting and law firms) will churn through young people, destroying their lives to preserve the partnerships bloated with boomers.
Couple this trend with the expected elevated unemployment for the foreseeable future and there are/will be a lot of angry young people. The United States has the same number of jobs now that it had in 2001 yet eight classes of university students have graduated into the labor pool. What is there in the United States for them? Nothing. I do not want to be in the United States when the young masses turn off their televisions and wake up to this fact.

Tue, 09/15/2009 - 22:36 | 70678 Anonymous
Anonymous's picture

Ever hear the motto "You can pay me now, or you can pay me later ?"

Well, the boomers, starting with the Reagan era, chose "pay me now" with Tax Cuts and deficits for 30 years. Now retirement has arrived, they and their country are broke, and the boomers must work another 30 years to pay the money back.

Good riddance, you get what you paid for...

Tue, 09/15/2009 - 22:37 | 70679 Anonymous
Anonymous's picture



Good riddance, you get what you paid for...

Tue, 09/15/2009 - 23:44 | 70717 Anonymous
Anonymous's picture

To balance this thread, I must admit that there's an extreme bias about the degradation of America et al for their lavish excessive life-styles. If I remember correctly this is how capitalism works. Excesses come in and are eventually wiped out and replaced by new excesses. It seems that most were not on the "excessive American life-style" hate until AFTER this crisis took (taking) place. You sit there and postulate the future which is not in existence in the now, so you're basically thinking about fantasy. Basically whatever appeals to your ego the most, which appears to be the condemnation of "excess" which mind you raised the living standards of millions of people around the world. There's no mention of the exponential increase in technology that will inevitably become ubiquitous in every aspect of our lives. Biotech sector is an example. Nanotech sector to develop soon after. Are these industries' growth a variable in your calculations or are you part of the mediocrity of American hating that appeals to your ego some way? It seems logical that since you cannot possibly foresee the impact of these industries on the improvement of life then you certainly cannot foresee the future outcomes of America's "excess." There's no doubt that the consumer's psychology has changed to more fiscal conservative but enough with your convictions. We would all agree that no one can predict the future and certainly not the markets so please keep in mind your bias. The efforts can be better spent elsewhere.

Wed, 09/16/2009 - 10:33 | 71013 Dantzler
Dantzler's picture

I'm a scientist in biotech in Seattle. The industry locally has undergone a brutal contraction that started in 2007 with the buy-out of ICOS by Lilly--700 folks laid off. Zymogenetics and several other big companies also had significant layoffs recently. Biotech makes up a relatively small part of the Seattle economy although proportionally it is greater now that Boeing has departed.

There are still a few good, well-paying jobs with excellent benefits in this industry and even today there are positions available.

The cost (and risk) of developing a new drug is very high ($1B) and thus the cost of the drug to consumers is very high (any one on Enbrel knows this).

I worry about the  market for these products if the consumer can't afford them and god help us if .gov gets to decide if aunt Edna with her crippling arthritis gets to have an expensive biotech-derived drug to ease her suffering to allow her to mend clothes and cut up carrots.

Can't speak for nanotech other than I'm sure the cost of such technologically dense products will price them out of reach for many.

Tue, 09/15/2009 - 23:48 | 70720 glenlloyd
glenlloyd's picture

good reading, and I didn't think it was too long. I do however agree that it assumes that the system survives, which at this time is huge assumption...and perhaps faulty.

Wed, 09/16/2009 - 00:02 | 70739 Privatus
Privatus's picture

Good article.

Wed, 09/16/2009 - 01:03 | 70782 steve from virginia
steve from virginia's picture

<blockquote>All cycles eventually bottom out and growth resumes.</blockquote>


Wrong. There will be no more growth, only illusions and statistical anomalies. Another bubble would be in 'growth'. Like the other bubbles, it is unsustainable by the actual, real productivity of its participants.


There will be no growth because the resourse base that supports it - particularly petroleum - has been very efficiently stripped out on the order of growth- led hyperconsumption. Once burned, oil is gone forever, leaving only a 'residue' of atmospheric pollution that also amplifies non- growth problems. You may or may not 'believe' in climate change, but when it is manifestly impossible to ignore it will a) be too late to do anything about it and b) I will laugh in your face!


Natural world constraints; this is the overarching mega- trend. What kind of a society can be crafted with much less - as in finite and severely depleted - resources?


Consider  this part of a dialogue within a marketplace. This marketplace is set to place a value on our productive civilization. This marketplace is now dominated by deniers and enablers. What value do these (fools) put on civilization? Not much ... they are therefor out of the market whether they are aware of it or not. The real price will be very high because the values are high. Most will not want to pay, but what are the alternatives?

Wed, 09/16/2009 - 02:10 | 70822 MsCreant
MsCreant's picture

Gold and silver acting mighty parabolic just this second.

Gold 1016

Silver 17.27


Wed, 09/16/2009 - 02:32 | 70831 loki
Wed, 09/16/2009 - 07:29 | 70883 Gilgamesh
Gilgamesh's picture

The gold spike preceded the drop in the DXY, not vice-versa for once.

Wed, 09/16/2009 - 12:57 | 71225 loki
loki's picture

what gives then?


Maybe because Buffett reported his intent to buy equities?


Wed, 09/16/2009 - 06:30 | 70869 Anonymous
Anonymous's picture

We are already in stagflation. this is reflected in the rise of stock markets world wide, and rise of commodities beyond demaand levels

Wed, 09/16/2009 - 08:37 | 70901 Anonymous
Anonymous's picture

It should be noted in the article that baby boomers are net sellers of houses... and what effect this would have on the housing market... given the other factors are present as well.

Wed, 09/16/2009 - 09:00 | 70912 Grand Supercycle
Grand Supercycle's picture

Watch the direction of copper, it tells us where the global economy is headed.

more here:

Wed, 09/16/2009 - 09:20 | 70925 Anonymous
Anonymous's picture

You wrote: "China’s economy is based on exports and the U.S. is its biggest trade partner."

What would happen to each of your megatrends if the U.S. gave a green card to 50 million of the wealthiest and/or most educated Chinese citizens over the next 10 years?

What would happen if they gave one to 20 million over the next 15 years? How about 30 million over 12 years? ... .....

Wed, 09/16/2009 - 14:10 | 71323 mkkby
mkkby's picture

We've been doing that for 20 years.  Ever looked at college graduating classes, or the nationality mix of tech companies?

Wed, 09/16/2009 - 11:32 | 71087 Ben Graham Redux
Ben Graham Redux's picture

This was a pretty good piece but I think it misses the point on a system's ability to generate income as a necessary ingredient for issuing debt.  As stated, the world is  awash in debt - nothing new.  But instead of focusing on choices people will make to reduce debt - something that runs counter to the low interest rates offered in the markets, the real reason will be carrying capacity of debt.  People will simply not have the ability to carry a marginal dollar of debt, and as personal debt gets to be priced at 30% at the margin, system demand continues to fall.


The whole idea that we will be able to pay back this debt is completely ludicrous.  You can't do an analysis that shifts consumption to savings/payback without considering the unintended consequences of lower demand on systemic output.  The less we spend, the more bankruptcy occurs in the private sector which ultimately turns into a vicious cycle until the debt is wiped out by bankruptcy.


People seem to forget that it takes income to carry debt.  Borrow $1 million at 8%, and you 'll have to generate at least $80,000 in income to service that debt.  Since much of the debt has gone into consumption, there is no income stream to service it, which means that bankruptcy or inflation are the only options.  As of today, the government is borrowing  like mad, but without income tax gains, there will be no way, short of inflation, to service the debt.  Since half of our creditors are foreigners, inflation is a foregone conclusion, regardless of the consequences.


The only survivors in our economy will be sellers of low elasticity of demand products with good balance sheets.  Low elasticity of demand with a levered balance sheet is an interesting possibility but without the potential to get money into consumers hands, it's a tough bet.


Getting back to the savings question, consumers will cut spending because real incomes will be falling dramatically for the foreseeable future, not because we've ultimately gotten smarter. 

Wed, 09/16/2009 - 16:09 | 71516 Anonymous
Anonymous's picture

Re 'The inevitable bust sent the world into economic decline wiping out trillions of dollars of wealth.'

Repeats the shibboleth of money heaven which forgets for every losing buyer there is a seller who profits...

Wed, 09/16/2009 - 16:10 | 71517 Anonymous
Anonymous's picture



Tue, 12/22/2009 - 10:55 | 171565 Anonymous
Anonymous's picture

The author talks about stimulus spending (deficit spending) confiscating wealth from one group to give to another yet these same people dont seem to offended when the creators of "financial innovation" gamble and lose trillions and then get bailed out by the "little people" the author alludes to as the beneficiary of the stimulus spending.. FU right wing rip off artists..

Tue, 12/22/2009 - 11:01 | 171570 Anonymous
Anonymous's picture

You are wrond dude.. Wealth (built upon fraudulent assumptionsO was wiped out
