Near zero economic growth by 2050? Yes, America’s
economy is collapsing. Fast. Yes, the “most depressing forecast ever,” says
InvestmentNews, trusted source for 90,000 professional financial advisers
across America.
Actually it’s worse than depressing if you read the
details in “On Road to Zero Growth,” the latest Quarterly Letter from Jeremy
Grantham, founder and chief investment strategist for the $100 billion GMO
money managers.
Yes, today’s fiscal-cliff drama is just a warm-up for
what’s coming. America’s economic future is a disaster. We are going over a
bigger game-changing economic cliff, into a long-term chasm. And it’s
unavoidable.
Why? Because our myopic Congressional leaders and Fed
chairman are focused on short-term fixes, piling on more monetary-stimulus
debt, while avoiding America’s systemic long-term problems. Yes, we are our own
worst enemy and nothing will keep us from driving down the road to zero growth
and into painful austerity, just like the 1930s.
Listen closely: here’s Grantham’s overview of
America’s economy from the late 1900s through 2050: “The trend for U.S. GDP
growth up until about 1980 was remarkable: 3.4% a year for a full hundred
years.” That powered the great American Dream. “But after 1980 the trend began
to slip.” And unfortunately the economy is “not going back to the glory days of
the U.S. GDP growth.”
Get it? A century of high-growth prosperity, then our
GDP growth dropped “by over 1.5% from its peak in the 1960s and nearly 1% from
the average of the last 30 years.”
America’s high growth and
prosperity is gone forever
What’s ahead? InvestmentNews’s Dan Jamieson sums up
Grantham’s “most depressing forecast ever:” America’s long-term 3.4% annual GDP
growth is ancient history. Grantham is blunt: “The U.S. GDP growth rate that we
have become accustomed to for over a hundred years ... is not just hiding
behind temporary setbacks. It is gone forever.”
Unfortunately, we’re in denial, accelerating the
decline. Just the opposite: “Most business people (and the Fed) assume that
economic growth will recover to its old rates.” Wrong: “Going forward, GDP
growth (conventionally measured) for the U.S. is likely to be about only 1.4% a
year, and adjusted growth about 0.9%.”
Listen closely: The American economy is on a long
decline. By 2050 our GDP will be under 1% growth. We are in a downhill road
race headed to zero growth while Washington, Wall Street, CEO’s and
billionaires play myopic games, feigning optimism, while making matters worse.
So investors, voters, taxpayers are left alone, forced
to adjust their long-term retirement plan accordingly, because this trend is
certain to raise havoc in the financial markets, in consumer spending and in
the job market, as we descend into zero growth hell.
20 leading financial minds
warned of 2008 bank crash for 8 long years
Back in mid-2008, months before the Wall Street
disastrous pre-election meltdown, we wrote a column reporting on eight years of
warnings made by financial leaders, beginning in 2000 till the 2008 meltdown. The list was
impressive: two Fed governors, an SEC chairman, five respected economists, four
billionaires, five big money managers, two financial historians, etc. Warnings
kept coming for eight years.
But not only were their warnings ignored, Treasury
Secretary Paulson was out there telling Fortune, “this is far and away the
strongest global economy I’ve seen in my business lifetime.” Fed Chairman
Bernanke was telling us the subprime crisis was “contained.”
Later, after 18 years running America’s monetary
system, former Fed Chair Alan Greenspan finally admitted to Congress, “I really
didn’t get it until very late.”
But Jeremy Grantham and many others did “get it.” Got
it early. He’s one of the world’s most respected money managers, “a capitalist
who co-founded two firms that today employ about 600 people in total.”
Investors should listen to his new warnings.
Trust Grantham’s forecast:
great track record, lots of great company
Back then Grantham was building on a mid-2005 special
report in the Economist magazine, “The Biggest Bubble in History,” warning that
in the five short years after the 2000 dot-com crash, property prices had risen
worldwide by an unprecedented 75%. Yes, real estate mania had replaced the
dot-com mania.
In his April 2007 quarterly newsletter, Grantham
described a trip around the world. His finding were headlined: “The First Truly
Global Bubble, impacting all countries, all assets worldwide. From Indian
antiquities to modern Chinese art; from land in Panama to Mayfair; from
forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s
bubble time. ... Everyone, everywhere is reinforcing one another. ... Bursting
of the bubble will be across all countries and all assets ... no similar global
event has occurred before.””
Then in his midyear 2007 letter, a deeply concerned
Grantham warned that watching the global economy was like “watching a very
slow-motion train wreck.” In his October letter, Grantham said the “train hits
end of track at full speed.”
A year later, on schedule, Wall Street’s slow-motion
credit train did in fact hit a solid wall, leaving Wall Street banks, America’s
monetary system and the world’s credit markets essentially bankrupt, a
catastrophe that was predicted years in advanced, and ignored.
No lessons learned from 2008
crash, blowing bigger bubble, disaster
Today we still haven’t learned any lessons: In his
early 2012 newsletter Grantham saw a bigger global train accelerating. Focusing
on the “common good, it became quickly apparent that capitalism in general has
no sense of ethics or conscience.” In fact, capitalism’s “greatest weakness is
its absolute inability to process the finiteness of resources and the
mathematical impossibility of maintaining rapid growth in physical output.”
The biggest culprit: Wall Street bankers. Their
collective myopic brain is incapable of seeing beyond their millisecond trades,
beyond today’s closing prices, beyond quarterly earnings, and never beyond
their annual bonuses.
All public costs, especially long-term environmental
losses, are discounted to zero, someone else’s problems.
America’s delusional leaders
on the road to zero growth
Flash froward to Grantham’s latest quarterly
newsletter: “On the Road to Zero Growth.” Will his warnings be listened to this
time? Any more than those 20 other warnings in the years prior to the 2008 Wall
Street crash? Unlikely, certainly not by Wall Street, not by Congress nor by
the White House — at least not in time to avoid another, and this time bigger,
meltdown than in 2008. They’ll keep misreading history with their faux optimism.
Grantham even has a special warning about the
disastrous job Greenspan’s successor Bernanke is doing, favoring Wall Street’s
too-greedy-to-fail banks while piling trillions of new debt on the backs of
future taxpayers with endless bond buybacks.
Grantham warns “investors should be wary of a Fed
whose policy is premised on the idea that 3% growth for the U.S. is normal.
Remember, the Fed is led by a guy who couldn’t see a 1-in-1,200-year housing
bubble! Keeping rates down until productivity surges above its last 30-year
average or until American fertility rates leap upwards could be a very long
wait.”
So if Washington and Wall Street don’t get it, Main
Street investors have no choice: Take control of your money and adjust your
retirement portfolios for the coming decline.
Black Swan: next crash,
bigger, longer than 2000 and 2008 combined
Grantham is a realist, understands human nature,
personally, nationally, globally. It will probably take a global catastrophe —
pandemic, famine, WWIII or a monetary system crash bigger than 2000 and 2008
combined — to awaken America: “Attitudes are sticky. We cling to the idea of
the good old days with enthusiasm. When offered unpleasant ideas (or even
unpleasant facts) we jump around looking for more palatable alternatives.”
Why? Americans are dreaming, in denial, trapped in a
delusion: The return to 3%+ GDP growth. Politicians are even biggest dreamers:
“The tech boom and bust and the following housing boom and housing and
financial busts helped camouflage the recent unpleasant economic development
lying below the surface: the steady and important drop in long-term U.S.
growth,” warns Grantham.
Global GDP will drop, too, but far outperform America.
The “bottom line for U.S. real growth,” says Grantham, “is 0.9% a year through
2030, decreasing to 0.4% from 2030 to 2050.”
The recent century-long 3.4% GDP growth is dead, never
to return. Never. Accept it, bite the bullet, plan ahead, downshift retirement
plans, do it now.
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