Posted on 01/12/2013 4:37:10 AM PST by blam
GARY SHILLING: We're In For Another 5 Years Of Painful Deleveraging (Job Losses To Rise, 11.0% - 2015)
Mamta Badkar
January 12, 2013
The current domestic and global investing environment is dominated by deleveraging, according to Gary Shilling.
In other words, households and institutions are slashing the debt on their balance sheets.
And according to Shilling, we still have some way to go:
"The deleveraging process for both these sectors has commenced, but it has a long way to go to return to the long run flat trends and we are strong believers in reversions to well-established trend. If we simply extend the downward slopes,it will take the Financial sector 9.5 more years to return to trend as bank assets continue to be dumped and capital raised, and 8.3 more years for the Household sector as debts are repaid or written off and assets are rebuilt through a rising saving rate
…We continue to suggest about five more years of deleveraging, however, since adding that to the 2008-2012 initial span would bring the total to about 10 years. That's the normal length of deleveraging after major financial bubbles, according to Carmen Reinhardt and Kenneth Rogoff's book, This Time Is Different: Eight Centuries of Financial Folly."
During this period of deleveraging and because of nine other factors weighing on growth, average GDP growth in the U.S. will be 2 percent. What's more the GDP growth rate will be much lower than than the 3.3 percent needed to keep the unemployment rate steady.
"A 2% real GDP growth indicates that the unemployment rate will rise, chronically, a little over one percentage point per year.
…This implies that the 7.8% rate in December would be about 8.8% in December 2013, 9.9% in December 2014, 11.0% in December 2015
(snip)
(Excerpt) Read more at businessinsider.com ...
Just in time for the 2016 election cycle and Obama will own it.
“Just in time for the 2016 election cycle and Obama will own it.”
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Who cares? He is the great messiah, don’tcha know?
I’m not so sure about 3.3% growth being necessary to keep the unemployment rate steady, but we certainly have hidden a lot of unemployment with discouraged workers, the newly ‘disabled’, etc..
Deficit spending is about 7% of GDP and counts in the GDP calculation! So if you subtract govt money printing from GDP, real GDP is actually shrinking at about 5 percent annually!!!
This is a lot of bunk until consumers start stop borrowing on reduced incomes to maintain a certain standard of living and start saving towards productive investment. The only sustained deleveraging that has occurred post-recession is within mortgages and that is because of foreclosures, writedowns, Central Bank intervention etc.
I share your concern about deficit spending, but I’m not familiar with it being included in any measures of GDP.
Well darn...just raise taxes on the rich.
That should take care of it.
I was chit chatting with a tech rep. The company he works for was recently bought out by a S&P 500 firm. He no longer has the ability to make any 401K contributions after the buy out. It is a tough world..
It’s Gary Schilling.He is like the comic character who has his own personal rain cloud......... perpetual gloom and doom
"GDP is calculated by adding consumption plus government expenditures plus investments plus exports minus imports. Consumption is personal consumption that includes durable goods (durable goods are goods that are expected to last more than three years), non-durable goods (such as food and clothing) and services. Government expenditures include things like defense and road construction. Investment spending includes plants and equipment, residential homes and business inventory. Finally, subtract imports from exports to get the net exports."
Right, but that is added in as part of GDP. Government deficit borrowing is not subtracted from the total.
GDP = C + I + G + (EX - IM)
where
C = private consumption
I = private investment
G = government expenditure
EX = exports of goods and services
IM = imports of goods and services
Right. But government borrowing is not subtracted from that—which is what you were suggesting.
The deficit is part of government expenditures, can’t you get that? Are you math challenged?
No, I’m not math challenged, thank you.
GDP calculations don’t take into account whether government spending is funded by taxes or by printing money or by borrowing money. Those government expenditures that are included in GDP are simply added to private goods and services produced (by whatever means those are measured).
Not all doom and gloom. According to the article, he thinks we have a few more years of deleveraging to go, then the economy will start to grow at a 3.5% pace.
We agree then, to get true picture of GDP subtract off that deficit spending. The economy is shrinking....
Not exactly.
You could argue the economy is shrinking because our official measure of inflation understates it, and once that is factored in, we actually have been experiencing flat or negative growth.
We don’t really count borrowing in measuring any of the GNP components, and borrowing is not new to us or other governments. Even if we go into debt for it, when a bridge is built, a bridge is built.
Is the output of the private sector shrinking? I think that’s really what you’re getting at. A case could probably be made for that, but deficit government spending isn’t the best place to go in building that case.
Take a math class and get back to me. Government spending is keeping the GDP from being negative. it is a trick a ruse. You appear too myopic to see that. God help and bless you. Harry Reid thanks you.
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