Wednesday, June 4, 2014

Rapid growth to resume after deleveraging completes

We’re in what I call the Age of Deleveraging. My book from 2010, The Age of Deleveraging is about this.

This global deleveraging, or working off of excess debt, normally takes about 10 years, that's the historical average. We’re six years into this, so another four years of slow growth could be expected. As a matter of fact, at the rate the deleveraging is taking place now, it will probably take longer than that.

And if that’s another three of four years, we'll probably have the Fed and other central banks maintain essentially zero short-term interest rates for that period. All the attempts thus far to revive rapid growth with fiscal and monetary ease have not worked, and that shows the power of this deleveraging. But beyond that, I think we’re going to see the resumption of rapid growth. That’s what I talked about at this year’s Strategic Investment Conference (SIC).

I call this “theory follows fact.” When fact continues for long enough, the theories come out of the woodwork as to why it's going to last forever. Of course, it’s very easy to sell “slow growth forever” when investors see it happening before their very eyes. People will say "Hey, right on brother, I see that right in front of me."

But I think we are going to see resumption of rapid economic growth. We're going have a return to rapid productivity growth. We have a lot of new technologies: biotech, robotics, additive manufacturing etc. that more in their infancy than they are fully developed. And they're going to drive productivity, and we’re probably going to have a lot of people come back into the labor force, a lot of people have dropped out because they couldn’t find jobs. I think we're going to reform our education system to orient more toward where the jobs are and less toward people taking a soft major in college and just assuming that because they got a college degree from Podunk University they deserve a job.

I think there’s going to be a lot of very favorable developments.