Dead Men Don't Spend

The Lehman bankruptcy was a much more important event than 9/11. It marked the end of a 60-year credit expansion. Maybe it marked the high water mark for the US Empire, too. And the beginning of the end for the US dollar-based world monetary system.

But the occasion went by yesterday without much notice.

What’s most remarkable about this post-Lehman economy is that it is so un-remarkable.

What do we mean?

Well, yesterday we reported that consumers weren’t spending…and that prices weren’t rising. But that’s just what you’d expect for a Great Correction.

And here comes The Wall Street Journal with another non-shocker:

The income of the typical American family — long the envy of much of the world — has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.

The Census Bureau’s annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.

Earnings of the typical man who works full-time year round fell, and are lower — adjusted for inflation — than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.

The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.

The WSJ goes on to provide more facts and figures. It scarcely needs to bother. We know what’s happening. The economy is contracting. And as it contracts, it squeezes jobs, incomes, spending and prices.

We saw a note in the press yesterday. It told us that even the wages of sin are falling. The union that represents waiters and cocktail servers at Atlantic City casinos says the hourly base has fallen from $8.74 to only $4.50. And tips are tumbling. Surveys of prostitutes show their earnings are a bit limp too.

And as people get squeezed by the financial correction…they gasp for breath. There are now 46.2 million people in America under the poverty line, according to The Los Angeles Times. That’s the most in 50 years.

But nothing extraordinary about that either. This is the biggest correction in half a century too. And you don’t have to look very far to find more confirmation.

That’s why the 10-year T-note yield has fallen to the lowest level since right after WWII.

And it’s why nearly half the people looking for a job have been looking for more than 6 months.

And it’s why a recent poll shows that 72% of Americans think the nation is going to hell.

Now, finally, almost everyone realizes that this is not a recession-recovery situation. Something else is going on. The Financial Times calls it a Great Recession. Richard Koo calls it a “Balance Sheet Recession.” And David Rosenberg says we should call it what it really is — a “modern depression.”

But we’ll stick with our Great Correction label. Because we think there is more going on here than even a ‘depression’ describes. (About which…more below…).

So far, practically everything that has happened is about what you’d expect — the predictable, ordinary consequences of a contraction. There is nothing remarkable about it.

But what’s this? The Dow rose 186 points yesterday. Stock market investors don’t seem to have gotten the message: this economy is in a contraction. They’re still pricing stocks as if they thought the underlying businesses would grow. But companies don’t add sales or profits in a contraction.

At least gold investors seem to have a better idea of what is going on. They sold the yellow metal yesterday. The price dropped $45.

And the bond market too has its feet on the ground. The yield on the 10-year note is only 2.08%. That is a level consistent with a Japanese-style slump…

No surprises here.

But what if there were more going on than a simple financial correction…even a correction of a 60-year credit expansion?

What if the Great Correction were greater than we thought? More ambitious…more aggressive…and more dangerous?

In the space of the last 500 years the human population grew approximately 1000%. If it were a financial chart, you’d look at it and think — ‘uh oh…it’s a bubble.’

What if we were approaching a correction?

Reuters reports that the population of Japan is falling like a stone. Some 20 million Japanese are expected to disappear in the next 30 years.

Declining, graying populations are not what you need for economic growth. Old people don’t spend much. Dead people spend even less.

As a result, the economy shrivels up like a 90-year-old. In Japan today about the only business still growing is the funeral business. People spend $157 to rent cold rooms, where they can store their loved ones while they await a spot at the crematorium. No kidding. Here’s Reuters:

The daily rate at Lastel, as it is known, is 12,000 yen ($157). For that fee, bereaved families can check in their dead while they wait their turn in the queue for one of the city’s overworked crematoriums.

Death is a rare booming market in stagnant Japan and Teramura’s new venture is just one example of how businessmen are trying to tap it.

In 2010, according to government records, 1.2 million people passed away, giving the country [an] annual death rate of 0.95 percent versus 0.84 percent in the United States, which is also the global average.

The rate of deaths is on the increase. Last year, there were an extra 55,000 dead and over the past decade, an average of 23,000 more people have died each year in Japan.

Annual deaths are expected to peak at 1.66 million in 2040 as the bulk of the nation’s baby boomer generation expires. By then, Japan’s population will have shrunk by around 20 million people, an unprecedented die off for a nation neither at war or blighted by famine.

In Yokohama, the average wait for an oven is more than four days, driving up demand for half-way morgues such as Lastel.

“Otherwise people have to keep the bodies at home where there isn’t much space,” says Teramura. It also provides a captive audience to which he can market his other funeral services and wares.


Bill Bonner
for The Daily Reckoning

The Daily Reckoning