Tag Archives: secular stagnation

The Fed Will Not Raise Rates In The Foreseeable Future

Summary: Since 2010 I have said that the economy is locked in slow-mo and the Fed will not start a new rate cycle. It’s even more true today than in 2010.

  • Many investors and economists are convinced that the Fed will soon end its near-zero interest rate policy and begin raising rates – “normalizing them”.
  • As I and others have said since the crash, these times are not normal (i.e., the post-WWII era has ended).
  • Most economic indicators show flat or slowing economic growth.
  • The developed world has fallen into secular stagnation.
  • The next event is not a boom requiring higher rates, but a recession.

Slow Economic Growth

Short-term riskless US rates are set in the world’s largest market:
when will rates return to normal?

Market yields on 3-month T-bills

We have been told for six years that soon interest rates will rise. During that time, the right-wing’s inflationistas have predicted rising inflation, or even hyperinflation (remember the 2010 “Obama will turn America into Zimbabwe” scare?). Incredibly, many experts still believe this despite…

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The secret but vital to know number in today’s economic news

Summary: Economists get excited about aggregate GDP (today’s hot economic news dot). People — you, me, our neighbors — care about per capita GDP. GDP that grows along with the population does nothing for our standard of living, (and less than nothing if the 1% cream off most of it). It is important to us, so journalists ignore it (hence the newsroom layoffs).

Slow Economic Growth

The economy has recovered since the crash (the doomsters saying otherwise are, as usual, wrong). But the stories about the wonderful economy are also bogus. Per capita real GDP has grown a total of 3.4% since its previous peak in Q4 of 2007 — only 0.4% per year (which is also its YoY growth in Q2 2016). This is secular stagnation. The causes are only somewhat understood; economists have only guesses as to its cure (as usual, delusionally confident guesses).

Growing at 1% – 2% per year since the crash. Slowing fast since 2014.

Growth of US Per Capita Real GDP since the recession - Q2 2016

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Trump & Clinton ignore America’s too-slow economic growth. We can change that!

Summary: Slow economic growth is among the most serious problems afflicting America. It’s incontrovertible, expected to continue — with broad and ill effects. Too bad neither of our major candidates are interested in talking seriously about it. We can change that, if we make the effort.

An exaggeration, but it’s a serious problem

Economic Growth is over

From the Fed’s survey of Professional Forecasters

The economy bounced as expected in 2010, with economists’ dreams of a “V” shaped recovery. Then the economy went off the rails, but they remained confident. Quarter after quarter, economists forecast great growth several years out — then slowly reduced them, only to find that actual GDP comes in even below their predictions. Forecasts of the Fed’s staff show the same pattern.

The only change is that now neither expects any improvement during the next few years. Of course, neither forecasts a recession in the next few years.

In 2013 Paul Krugman and Larry Summers predicted that the US had lapsed into secular stagnation. It was controversial then. After three years the problem has become apparent to anyone paying attention.

Consensus prediction of professional forecasters in Q1 of each year & Q2 2016
Read from left to right, top to bottom. Actual GDPs are in bold red & italics

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Fewer new superstar firms: another step towards secular stagnation for America

Summary: Economists are studying the mysterious multi-decade slowing of the US economy. One bright spot was rapid job growth in a few rapidly-growing young firms. A new study shows that since 2000 both the number of start-up firms and the number of those with very rapid growth has been declining. It’s another step on the path to secular stagnation, an economic illness which could reshape America in a bad way. When we take this problem seriously our political leaders will do so. This election season shows some signs that has begun.

Deflated balloon

The Number of High-Growth, Job-Creating Young Firms is Declining

By Jay Fitzgerald from the NBER Digest, February 2016
Red emphasis added.

The number of start-up firms in the United States has been declining in recent decades. Prior to 2000, the employment effects of this decline were partly offset by the presence of a small number of high-growth young companies. That pattern seems to have changed.

In “Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S.“, Ryan A. Decker, John Haltiwanger, Ron S. Jarmin, and Javier Miranda show that the general decline in new firms has been accompanied, since around 2000, by a corresponding decline in the number of high-growth start-ups.

New firms accounted for about 13% of all companies in the late 1980s, but only about 8% two decades later. In the 1980s and 1990s, however, a small number of young, innovative, and dynamic companies grew at very high rates. This “skewness” in the rate of job creation among young firms increased the contribution of young firms to overall job creation.

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The Fed sees years of slowing growth. Prepare for years of political turmoil.

Summary: Slowing economic growth and rising inequality are the unmentioned elephants in Campaign 2016. While inequality gets the headlines, slowing growth is more important. The Fed forecasts show that they see it. Do we? Are we preparing for the resulting political or social turmoil, or trying to restart the engines of growth? Time is not our friend. {1st of 2 posts today.}

“Our real problem, then, is not our strength today; it is rather the vital necessity of action today to ensure our strength tomorrow.”
Eisenhower’s State of the Union address on 9 January 1958.

We imagine that we’re fast. That’s no longer true.
Fast Snail

Today the Fed released the governors’ and presidents’ new forecasts of economic growth (real GDP). Here we see one of the primary forces driving Campaign 2016, one almost invisible to  well-paid journalists and political gurus — but obvious to most Americans. Look at how their expectations for each year’s growth have shrank over time. Real GDP grew 2.4% in 2014 and 2015.

  • In Sept 2013 the Fed expected 2016 GDP growth of 2.5 – 3.3%; they now expect 2.1 – 2.3% (note the large drop in the high end forecast).
  • In Sept 2014 they expected 2017 growth of 2.3 – 2.5%; they now expect 2.0 – 2.3% (just starting its long slide).
  • In Sept 2015 they expected 2018 growth of 1.8 – 2.2%; they now expect 1.8 – 2.1% (the most distant forecasts fall slowly).
  • In Jan. 2011 they expected long term growth of 2.5 – 2.8%; they now expect 1.8 – 2.1% (note the large drop in the low end forecast).

This has been pattern for economists’ forecasts since the crash: optimism about the future several years out, with each year’s forecast slowly ratcheted down as the grimmer truth becomes obvious — to be replaced with new optimistic forecasts about the distant future. Worse still is the fall in expectations for long-term growth — the great background against we shape our plans.

Perhaps the most important measure of growth is that of real per capita personal income. This is national power in its purest form. Our memories of good and bad decades do not well match the facts. Rather we have had a long slide down, slowing growth, decade after decade. For more information see the interactive graphs at the Regional Economic Analysis Project (REAP). The bottom line…

  • 1960-69: 3.5% — The golden years,
  • 1970-79: 2.3% — The terrible 1970s (not so terrible).
  • 1980-98: 2.2% — The Reagan Revolution (Tax cuts! Didn’t work!),
  • 1990-99: 2.0% — The tech boom (Didn’t work, even before the bust!).
  • 2000-09: 1.2% — The Bush Jr. years (Tax cuts! Didn’t work!),
  • 2010-14: 1.4% — First half of the Obama years (Small uptick from the recovery and partial reversal of Bush Jr. tax cuts).

We have tried various nostrums to restore growth; none have worked. Worse, these are mean growth rates. Median income growth is much lower — less affected by rising inequality (as the 1% skims off more and more) and so better reflects life for average Americans.

Look to the futures shown on the graph below. America’s fate depends on which line we take. The top line means prosperity, if equitably distributed. The bottom line (secular stagnation) probably means a new America will arise, especially if unequally distributed (i.e., like the past 40 years, with most Americans’ real income stagnant — and some getting much less).

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Put the latest stats in larger context to understand the economy

Summary: Amidst the bursts of enthusiasm about the economy by bulls (boom!) and bears (recession!), the reality continues to be slow growth, and slowly falling forecasts for the future. Only slowly do people come to realize that, as so many sell hope and despair to their audience. This post looks at our economy from the present quarter to the unknown glories ahead. Understanding events requires seeing this broad context.  {1st of 2 posts today.}

Seeing the future

Ron Chapple/Getty Images


  1. Inventory to sales ratio.
  2. New Homes Sales.
  3. Retail Sales.
  4. Fading hopes for the future.
  5. Beyond secular stagnation.
  6. For More Information.

(1)  Inventory to sales ratio

The total business inventory/sales ratio for April has gotten a lot of attention from the bears, but wrongly. Changes in technology and business practices reduced the rate steadily from 1.55 in 1992 to 1.25 in 2006, when its current range began. Nine years is too short a history to tell us much. Also, this is a lagging indicator. The wholesale inventory/sales ratio tells a similar story. I don’t know why this has increased since the April 2012 low of 1.25. The weakness this year reflects the slowdown early this year. Total business inventory to sales ratio

(2)  New Homes Sales

Due to our obsession with housing as an investment, this indicator receives attention disproportionate to its importance. April new homes sales were flat for the 3rd consecutive month, down 4% from the December post-crash high. It remains a strong although only small part of the economy. Continue reading

Do we face secular stagnation or a new industrial revolution?

Summary:  US growth is slowing when it should be accelerating as we shake off the effects of the crash. The possibility of a fifth year of slow growth strengthens fears of stagnation like that afflicting Japan since 1990. Yet there’s good reason to suspect that a new industrial revolution has begun, potentially generating incredible new wealth — if we manage the process well politically. Which future is correct? Both of them.  {1st of 2 posts today.}

“There are decades when nothing happens; and there are weeks when decades happen.”
— Attributed to Lenin.

Future Industry


  1. We’re becoming Japan.
  2. We’re accelerating to take off speed!
  3. The 3rd industrial revolution?
  4. Conclusions
  5. For More Information.

(1)  We’re becoming Japan.

Compare growth in per capita GDP of America and Japan. We following in their footsteps.

  • US since the crash:  1.4%/year (2010-2014: 1.7, 0.8%, 1.6%, 1.5%, 1.6%).
  • Japan before the crash: 2.0%/year (2003-2007: 1.2%, 2.6%, 1.9%, 2.1%, 2.3%).

This is a big story. It’s called secular stagnation (see the posts describing this theory, with links). Readers of the FM website have known about this since 2010, with more details given in 2013 and even more last year.  Larry Summers introduced it to the world in 2013. It’s still controversial, as seen in Ben Bernanke’s rebuttal this week (see Larry Summers devastating reply). I suspect time will prove Summers is correct.

Also, Japan has still not pulled out of their stagnation, despite the 3 arrows of Abenomics.

(2)  But we’re accelerating to take off speed!

No, we’re slowing, as shown by the Atlanta Fed’s GDPnow forecast for Q1 of zero growth. Yet the experts remain hopeful for a better year than 2014. The Fed foresees growth in 2015 of 2.3% – 2.7%. But then in September 2012 they expected growth in 2015 of 3.0 – 3.8%. The February survey of Professional Forecasters shows a median expectation of 3.2% for 2015 (note this calculates annual GDP slightly differently than does the Fed). I expect they will be disappointed, yet again.

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