Gary Shilling: U.S. Economic Growth over Next Decade Will Be Slow

This entry from Gary Shilling comes via John Mauldin’s site InvestorInsight.com where he highlights commentary from some of the best economic thinkers. Shilling, who correctly predicted problems in residential real estate in the US, is in the deflation camp. He thinks the US will be a slow growing economy prone to recession and high unemployment over the next decade. A major factor in this is the anticipated increase in savings due to withdrawal from the asset-based economy and the beginning of a balance-sheet recession.

As I indicated in my last post, it is this prospect which should keep policy makers up at night because it will mean the US government is going to continue as a major economic actor for years to come. I should point out that the Great Depression, while much more severe than what we have experienced thus far, had significant periods of high growth, but was largely characterized by short business cycles and a general deleveraging – the D-process, now my short-hand for depression. Just sayin’.

(Excerpted from the August 2009 edition of A. Gary Shilling’s INSIGHT)

Beyond the current recession, the worst since the 1930s, lies years of slow growth, as we’ve discussed in past Insights. The next economic recovery, which will probably start around mid-2010, will likely be so subdued that it may not feel like the recession has ended. And economic growth in the bulk of the next decade will probably be slow — so slow that it will force the federal government to take continuing actions to prevent high and chronically rising unemployment.

Six Causes of Slow Long-Term Growth

As explored in detail in past Insights, six forces will promote slow long-term growth in the U.S. and, indeed, on a global basis — U.S. consumer retrenchment, financial sector deleveraging, weak commodity prices, increased government regulation and involvement in the economy, protectionism and deflation.

Consumer Retrenchment. First and foremost is the dramatic switch by American consumers from a 25-year borrowing and spending binge to a saving spree that should extend a decade or more. As we pointed out last month, in the 1980s and 1990s, U.S. consumers regarded their soaring stock portfolios as continually filling piggybanks that would fund their kids’ education, early retirements and a few round-the-world cruises in between. So they slashed their saving rate and pushed up their borrowing to fund spending growth that consistently exceeded the rise in after-tax income. When stocks nosedived with the collapse in the dot com bubble in 2000-2002, leaping house prices seamlessly took over to finance oversized consumer spending growth.

Source

Slow Long-Term Growth, And Government’s Response – Gary Shilling

Comments

[j-dub]

Since our fantasy economy imploded, I think even slow growth is a bit
optimistic. Unless the government can spend enough of OUR money....................

How about close to no growth?

USS Reality welcome you, America.
Glad to finally have you on board!!!!

2009 Aug 11 02:25 AM

[CautiousInvestor]

It's astonishing that many simply do not get it: the party is over and the consumer is leaving the party with a huge hangover of debt.

And notwithstanding the hopes and plots to have him return to the punch bowl, he is done.

Along with crushing deficits, higher taxes, greater regulation, weaker growth, reduced international trade and de-levering, this is the new normal.

2009 Aug 11 07:30 AM

[Marvin Clark]

A more succinct way for Gary Shilling to say it is a service-based economy with falling wages and disposable income and high debt has a bleak future.

2009 Aug 11 09:18 AM

[Gregman2]

I always confuse Gary Shilling with Garry Shandling. Is it because both are comedic?

2009 Aug 11 06:30 PM