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“Double Dip” Talk Misses Forest for the Trees

Over at the Big Picture, Barry Ritholtz has a great quote from Felix Zulauf in his post, Quote of the Day: Double Dip or Not.

Below is my “double dip” .02 as added in the discussion thread — off-the-cuff and on the fly as usual:

To some extent the “double dip” talk misses the forest for the trees.

In this case the “forest” is the fact that we are at the tail end of a leverage and debt supercycle, having just endured the bursting of a massively destructive financially engineered asset bubble, even as the long-run impacts of accelerated competition via globalization and scarce natural resource allocation start to hit at the same time.

Look at a long-term trend for the average consumer savings rate (cents saved per dollar earned). I think the St. Louis Fed has good stats on this. The consumer savings rate was above 10% way back when, a long time ago in a galaxy far away, and then just kept going down, down, down until it finally went below zero in 2005. This “eating our seed corn” trend was exacerbated by the fantastically destructive rationalization that “I don’t need to save for retirement because the perpetually rising value of my home will take care of that.”

And oh yeah, speaking of retirement, I believe (per Rosenberg) the median age of the baby boomer generation is now about 55. That means you have an army of folks, tens of millions strong, heading into their golden years with bupkis in the bank. Most boomers are woefully underfunded relative to retirement needs. An insanely high percentage have next to nothing socked away. In the next few years we are gonna hear a lot more about boomers throwing nickels around like manhole covers.

And then, of course, the bad assets problem with the banks was never really fixed — just papered over. And attempts to fix the structural unemployment problem via more “stimulus” will fall flat for many reasons, not least among them a training mismatch. The skill-based jobs showing increasing demand today, such as opportunities in high-end manufacturing, are simply not matched up with the untrained American worker. A multi-year boom in the real estate and construction trades temporarily covered over the growing skills mismatch between employer requirements and employee skillsets in the U.S.A. Now that tide is receding.

So basically, the “old normal” is toast. It’s gone, dead, kaput. This should not be such a big surprise. What was always unrealistic was the notion that a window of time in economic history, running 20-30 years or so, could perpetuate indefinitely. That’s no[t] how the world works. It never has been.

And so, to a certain degree, many of the hand-wringers and “double dip” ponderers are operating from a completely broken framework. They keep wondering how we get back to the good old days. The answer is, we don’t. The future for America may be bright again, at some point down the road, but right now we’ve got a dark patch to work through and a tough row to hoe that will last for quite some time. This is just pragmatic observation of reality and applied common sense imho.