US Economy Still Inching Toward a Japan-Like Slump
Another week gone by! Another week closer to Tokyo!
The Dow dropped another 145 points yesterday. Gold rose $11.
Will stocks recover today? Or will they just keep going down?
We’re not a soothsayer. We can’t read the stars…or interpret the charts. Still, we don’t mind taking a guess about the future from time to time. And don’t bet on it, by the way…
But we have a hunch that this market is headed down. Because now even the Fed can see that this recovery ain’t happening. The Fed announced that it was keeping its ultra-low interest rates ultra-low for an ultra-long time. That is, it extended its extension one more time.
Readers with even a faint recollection of recent financial history will remember that this is what Alan Greenspan did when he was still the smartest man in the world. He kept extending the period of emergency low rates after the mini-recession of ’01. The Fed kept lending money at less than the rate of inflation – for 4 years, as we recall. The result was the huge bubble of ’05-’07…and then came the blow-up of ’08-’09.
But times have changed. Now, the economy is no longer bubbling up. There’s no fire under it. Instead, it is cold. Shrinking. Contracting. Like a possum that has been hit by a truck but isn’t dead yet.
And even Tim Geithner must realize that all those trillions spent on ‘stimulus’ were largely wasted.
He’d argue that at least they saved the world from a dreadful meltdown. But none of us knows what would have happened. He’s got his opinions. We’ve got ours…
But it looks more and more like our opinions were right all along. We can scarcely believe it. We don’t take any forecasts seriously. Especially not our own. But what do you know….
Yes, dear reader…it’s Bonsai! Or whatever they say in Japan…
Years ago, we wrote a book, along with Addison Wiggin, predicting that the US would follow Japan down that long, lonely road…
…where people get older…sales go down…prices fall…
…where they save for their retirements, rather than spend, spend, spend…
…where real estate loses as much as 80% of its value over a period of 15-20 years…
…where stocks go down, down, down and don’t get up for two decades…
…where the government pumps money into arteries and veins but it can’t revive the economy…
It’s been three years since this slump began. We’ve seen the biggest stimulus effort ever mounted; and the economy is well, not dead…but it’s beginning to smell funny.
The roof fell in on the housing market this week. But you already know that…
What don’t you know?
Oh never mind, you know everything we know. Probably more.
What can we add? Just that maybe we’re right about this Japan thing after all.
When the crisis hit, we recall wondering where the surprise would come from. There’s always a surprise, isn’t there? Everyone expected a quick recovery. But there was no recovery. Neither quick nor slow. But that was too obvious.
It was taken almost for granted that if the feds pumped in enough adrenaline, they’d be able to get this beast upon on its feet and walking around again – just as they did after the ’01 downturn. Worst case, they’d cause an inflationary blow-off.
But what if the downturn lasted much longer than people expected? What if it dragged on year after year, despite the feds? What if it acted just like Japan, in other words?
We seemed 10,000 miles from Tokyo back then. Now, we’re much closer.
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