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The Lost Decade

Sunday, January 10, 2010, 1:24 PM

Well, now that the returns are in, we can declare this past decade, 'the Aughts,' to be a lost decade.  There's an important story contained in the data from the Aughts, and it exposes the foundations of our current economic crisis.

Forget about subprime mortgages and regulatory failures; those were merely stage props in a very large theatrical production.  The plot line was the massive accumulation of credit across all sectors of society and an associated failure to save and invest.

Under the careless watch of Greenspan and then Bernanke, the total amount of debt in the US doubled from $26 trillion at the beginning of 2000 to $52 trillion at the end of 2009.

Imagine that you'd loaned your next-door neighbor $1 million in 2000.  What would you have required in order to double your loans to him/her to $2 million over the next decade?  I presume that you'd have wanted to know that your neighbor's job was secure and their income growing.

Now consider that during the Aughts, for the first time in over six decades, the US saw zero net job creation, and, for the first time in the data series, saw falling median incomes.

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.

The last ten years saw a doubling of debt, combined with stagnant jobs and wages.  Our debt doubled, but our means to pay it back remained utterly flat.  This is all you really need to know to follow the main plot line of the crisis.

To continue our thought experiment from before, if the nation were your neighbor, would you have loaned them twice as much?  Maybe not.

If you ever wondered how everybody seemed to be driving new cars and taking lavish vacations, the answer lies in the doubling of debt.   The mystery of how it was possible to accumulate twice as many people working in government jobs as in manufacturing positions is solved by understanding that we simply paid for it all on a national credit card.   In short, our standards of living were illusory, in that they were built on mountains of debt.

Which means that all the erstwhile efforts to 'fix the credit markets' so that we can get back to where we once were are not just misguided, they are harmful.  We really shouldn't try to recreate the conditions of the Aughts.  They were unsustainable, had to end, and did.

Instead, we should be asking, "Where do we want to go from here?"   We should take this opportunity to cut away those things that need to lopped off and divert our investments towards things that make sense for the future.

For example, the United States has badly over-'invested' in retail space and could certainly get by with a lot less of it.  Therefore, efforts to 'unlock the credit markets' so that we can continue on our recent mall-building binge are stealing capital and talent away from the things we really need, like a modern and functional high-speed rail system.

Do we really want to default into a future that delivers 30 square feet of retail space per capita?  How about 40?  Does a shopper in the US really need more than six times as much retail shopping space as someone in Europe?  How much is 'too much?'

The heroic efforts to sustain that way of life could well have something to do with the fact that so many people have a sinking feeling in their stomachs that we are on the wrong track.

The challenge at any great turning point in history is recognizing that the landscape has fundamentally shifted.  For my part, I am so certain that the Aughts cannot be recreated in letter or spirit that I am not at all interested in playing the stock market or fiddling around with bond funds, both of which are trading at levels that explicitly assume the Aughts are coming back.

They are not.

It's a different future that awaits.  Not necessarily worse, but certainly involving a whole lot less stuff bought on credit.  Some will interpret this as a distressing decline in living standards, but for those who can shift their perception, this will be an exciting time of transformation from a culture of consumption to something far more satisfying and lasting.

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22 Comments

billbrad's picture
billbrad
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Joined: Dec 20 2009
Posts: 3
Re: The Lost Decade

Agreed.  Good article.  The question remains.  How do we come to an agreement in this country that we need this shift when we as a culture are addicted to laissez-faire, free markets and unrestricted consumerism.   How do we shift our attention to light rail, renewable energy, infrastructure investment etc. unless we have the intervention of a government which is devoted to the best interests of the common good rather than the best interests of financial institutions.  At this point, I see the propaganda machine shifting public opinion back to Alan Greenspan.   How would you propose to create some understanding here about how we can make this shift politically?   In my view, the resistance to this understanding on the part of those who manipulate public opinion is very powerful and we completely lack the focus we need as a nation to accomplish what needs to be done.

jpitre's picture
jpitre
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Posts: 366
Re: The Lost Decade

Good post Chris. Thanks.

Bad enough to have lost a decade, but we lost a very specific critical decade - imagine where we could/should be now with all the resouces squandered on war, empty boxes and trinkets that could have been devoted to energy conservation, renewable energy and re-building our food production/processing system.

I suggest that we may never recover from mindless stupidity of the "Aughts"

Here to improvement in this next decade -- that will be possible if you and people like you maintain the focus and energy required to bring about the awareness needed to change course.

Jim

jdownie's picture
jdownie
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Posts: 58
Re: The Lost Decade

Not so fast, credit spreads are rapidly falling & now longer term UST yields are showing signs of moving up, short term yields will follow if the trend continues. Stocks & commodities will follow. On top of this there is still no sign that the longer term ie 30 year UST bubble is about to end (unless this marketskeptics.com fellow is right).

You may yet default with your 40 sqm of retail space. Most likely we will here in Australia, new real estate related credit is 'inflating', looks like the government (courtesy of the bank accounts of the citizens) has patched the deflating bubble.

idoctor's picture
idoctor
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Re: The Lost Decade

Davos's picture
Davos
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Re: The Lost Decade

Super read, thanks!

This chart you did

really is a great picture and turns the focus knob on another one of my favorite reads making it crystal clear. 9 billion borrowed $tarbucks.

rhare's picture
rhare
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Posts: 1323
Re: The Lost Decade

The video from MSNBC is so typical.  They actually identify the culprit being the Federal Reserve System, but do they even think about addressing the root problem, Noooo.  Let just put in some windfall profit taxes instead of ending the whole reason this type of crap can happen.  So ******* stupid.

rhare's picture
rhare
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Re: The Lost Decade

How do we come to an agreement in this country that we need this shift when we as a culture are addicted to laissez-faire, free markets and unrestricted consumerism.

First thing is to recognize that this statement is not true.  We don't have free markets and haven't for a long time.  If we did the type of stuff we see happening in the world could not happen.  Without a fiat currency very little of this out of control spending by the government or individuals would occur.  After all, if you don't have free money flowing from the fed no one would have been able to borrow. 

unless we have the intervention of a government which is devoted to the best interests of the common good rather than the best interests of financial institutions.

The answer will never be with the government.  They caused this mess, why the hell do you think they can do anything right.  We need to dramatically shrink the government, get them out of business where they favor policially connected buddies.  We need to get sound money, functioning free market, and get rid of central economic planning.  We need to get people back to responsibility for their own lives and let state/local governments deal with these issues. 

If we didn't have the fiat currency mucking everything up (particularly as a reserve currency) we would have had much higher energy prices all ready.  That would have spurred people (the market) to invest in alternative energy, better transportation out of necessity.  But instead government has pushed programs like ethanol that is a complete waste and only benefited those receiving the massive subsidies while killing alternatives that might have actually been viable.

Until we start getting to the root problem (fiat money), nothing will change.

jpitre's picture
jpitre
Status: Gold Member (Offline)
Joined: Mar 3 2009
Posts: 366
Re: The Lost Decade

I posted this a while back and think it is worth a re-post:

 

I think that the whole idea that our problems stem form government manipulation of markets is an illusion -- it only seems that way on the surface. Behind the government regulation is the vast manipulative system (a very natural progression in hindsight) concocted by our so called free enterprise/capitalist system that has seized control of of our entire economic system for the benefit of the few who both overtly and covertly control our economy including the monetary system and the government. Some call this a system of  "corporatocracy". The Capitalist system left to free wheel without strict regulation spins out of control making it our master rather than serving our needs.
According to David Korten in his book Agenda for a New Economy summarizes Adam Smith's plan for free market systems as follows:
1) Buyers and sellers must be too small to influence the market place
2) Complete information must be available to all participants, and there can be no trade secrets
3) Sellers must bear the full cost of the products they sell and incorporate them into the sales price
4) Investment capital must remain within national borders and trade between countries must be balanced
5) Saving must be invested in the creation of productive capital rather than in speculative trading
Korten goes on to say that Smith was in favor of local market economies run by small entrepreneurs and that he would take offense at being associated with anything resembling our current definition of Capitalism.
My point being that it looks to me that whether we like it or not, (I hope) we are headed towards Smith's vision of an economic system that will benefit us all rather than the few -- and allow us all to step off the corporate treadmill
Jim

 

 

rhare's picture
rhare
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Posts: 1323
Re: The Lost Decade

Behind the government regulation is the vast manipulative system (a very natural progression in hindsight) concocted by our so called free enterprise/capitalist system that has seized control of of our entire economic system for the benefit of the few who both overtly and covertly control our economy including the monetary system and the government.

....

2) Complete information must be available to all participants, and there can be no trade secrets

I don't disagre that these things are true.  The "vast manipulative system" is the federal reserve.  It violates  rule #2 since it manipulates the money supply and interest rates (trade secret).  It is a cartel over money.  As soon as the Federal Reserve was established (1913), the free enterprise/capitalist system ceased to exist and long degredation begin.

Sam's picture
Sam
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Posts: 51
Re: The Lost Decade

The idea that the individuals who make up a government will ever serve interests other than their own is delusional. The corporatist fascism under which Americans are now enslaved could not exist without the force implied by government guns. No free market here, it is interesting though that even the lovers of government are beginning to realize that the the partnership between the government and corporations may be part of the problem. The idea that the solution for that evil system is more government power is troubling.

V's picture
V
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Posts: 849
Re: The Lost Decade

Very interesting post. I am glad to hear you say you are not fiddling around in the stock market as so many here on this site are obviously doing. We are certainly at a time when the vast majority is buying what they need and needing what they buy. This brings us to the statement by the second most influential human of the 20th century

"There is enough for all of man's needs but not all his wants"

Gandhi

I am however not in alignment with your statement alluding to the idea that Al and Ben were/are careless.

There is no way I can ever accept that, after almost 100 years of Federal Reserve policy and Al being a former disciple of Ayn Rand's , they do not know what they are doing. I can only assume that you are being politically correct in issuing such a statement and wishing to remain as neutral as possible. These people know exactly what they are doing and the logical outcomes.

The sooner the critical mass of not only Americans but people all over the globe get it the sooner we will once again return to a free market and real freedom which springs from a people controlling it's own currency.

Ron Paul is right

jpitre's picture
jpitre
Status: Gold Member (Offline)
Joined: Mar 3 2009
Posts: 366
Re: The Lost Decade

Sam -- I think we are probably in agreement. Government needs to be by, for, & of the people. What we have here is a government by, for & of the corporations/Wall Street/big banks etc. who have co-opted the government for their own ends. So given the appropriate relationship and function of government (minimal) representing the interests of the people, then a strict set of limited rules for the free market to follow will keep us clear of rule by the Oligarchy as is the case now. 

Jim

jpitre's picture
jpitre
Status: Gold Member (Offline)
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Posts: 366
Re: The Lost Decade

V -- I agree that Ben B. and Al G.(and the rest) were  and are not careless or stupid. They and the rest of their group have managed to take over most of the economic system of the world which shows them to be extremely competent at doing what they do - which means that we are not dealing with dolts, but rather people who are capable adversaries who will not give up without a tough fight.

Here's to the change we need.

 

Jim

Gadfly's picture
Gadfly
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Re: The Lost Decade
billbrad wrote:

Agreed.  Good article.  The question remains.  How do we come to an agreement in this country that we need this shift when we as a culture are addicted to laissez-faire, free markets and unrestricted consumerism.   How do we shift our attention to light rail, renewable energy, infrastructure investment etc. unless we have the intervention of a government which is devoted to the best interests of the common good rather than the best interests of financial institutions.  At this point, I see the propaganda machine shifting public opinion back to Alan Greenspan.   How would you propose to create some understanding here about how we can make this shift politically?   In my view, the resistance to this understanding on the part of those who manipulate public opinion is very powerful and we completely lack the focus we need as a nation to accomplish what needs to be done.

billbrad,

  I am afraid you missed the point.

buenijo's picture
buenijo
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Posts: 7
Re: The Lost Decade

Billbrad, the single greatest obstacle to achieving a sustainable economic growth is the widespread and mistaken belief that the U.S. is a free market. Without understanding that our problems are caused by central control of the economy, the solutions proposed will only move us toward a more complete totalitarian regime. What we need for a sustainable path toward prosperity is a feedback control system that accounts for the reality of resource scarcity. The only system that can do this in a modern economy is a sound money and banking system that sets interest rates as a function of savings (i.e. underconsumption).

guardia's picture
guardia
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Posts: 592
Re: The Lost Decade
V wrote:

There is no way I can ever accept that, after almost 100 years of Federal Reserve policy and Al being a former disciple of Ayn Rand's , they do not know what they are doing. I can only assume that you are being politically correct in issuing such a statement and wishing to remain as neutral as possible. These people know exactly what they are doing and the logical outcomes.

IMO, it depends on how they consider the two other E's (Energy and Environment) side of the equation. If they are aware of problems like peak oil, then we may argue that they know what they are doing. On the other hand, what I believe is that they are not aware of the effect of peak oil (and related physical limits of our planet) and do not realize that continuous printing will results in hyperflation... I mean, do you see anything in the way that makes you believe Bernanke and others are making prepations to save their wealth while they still can? In the end, though, the result will be the same for all the rest of us...

Samuel

V's picture
V
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Posts: 849
Re: The Lost Decade

Guardia

I will defer to Larry and the numerous posts he has made regarding who 

is really in charge.

V

DallinD's picture
DallinD
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Posts: 1
Re: The Lost Decade

Good post. Every recession becomes a global recession very quickly. This current one caused world stock markets to take a dive, and going into 2009. However, 2009 saw stock markets post some incredible gains.  Asian markets did better than US and European markets, but over a longer period of time, stocks are still down.

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
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Posts: 3998
Re: The Lost Decade
buenijo wrote:

Billbrad, the single greatest obstacle to achieving a sustainable economic growth is the widespread and mistaken belief that the U.S. is a free market. Without understanding that our problems are caused by central control of the economy, the solutions proposed will only move us toward a more complete totalitarian regime. What we need for a sustainable path toward prosperity is a feedback control system that accounts for the reality of resource scarcity. The only system that can do this in a modern economy is a sound money and banking system that sets interest rates as a function of savings (i.e. underconsumption).

Welcome to the fray buenijo.....  however, have you done the Crash Course?

Please come back AFTER doing the Crash Course.

Mike

rht1786's picture
rht1786
Status: Bronze Member (Offline)
Joined: Aug 13 2008
Posts: 36
Re: The Lost Decade

There has been plenty of comments about what to do about the government interventionalism and the deep-seated tendencies in Washington to preserve the status quo. 

The solution: Revolution.

Many famous individuals from the record of history have spoken to the necessity of refreshing liberty with revolution. One of the hallmarks of the United States of America in the 1800s was its ability to essentially have a peaceful revolution every 4 years with a newly elected administration. With the vested interests present in contemporary Washington, DC, the effects of a political revolution every four years are muted. The same individuals with the same viewpoints stay in power, with the same friends and the same interests. 

For those of you in the United States, this is what must happen for the Untied States to emerge from the veil of ignorance it presides beneath. 

Stand up and speak your minds. Learn how to transmit this information, and then inform others. If every member and reader of this forum were as active as Chris in speaking at different occasions, and presenting the Crash Course via PowerPoint, taking the time to understand its many aspects and the economic reasoning behind it, this would greatly facilitate change.

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1323
Re: The Lost Decade

Welcome to the fray buenijo.....  however, have you done the Crash Course?

Please come back AFTER doing the Crash Course.

Not sure how anything buenijo said wasn't supported by the crash course?  Why did you think other wise?  This wasn't a very friendly response to a first post.

Welcome buenijo and please don't let Mike scare you off...

 

V's picture
V
Status: Platinum Member (Offline)
Joined: Dec 14 2009
Posts: 849
Re: The Lost Decade

Buenijo.

Welcome. I liked your post. I would not pay to much attention to people that suggest you watch the crash course. You seem to have a pretty good grasp of the situation.

V

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