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I now offer three different ways to look at this data. Keep in mind that they are just my opinions though.
1. We could simply return to the blue median trend line someday. I certainly don't see any reason why we couldn't. We can't blow bubbles forever. At some point, we'll simply run out of ideas.
If we do return to the median trend line, then the most likely outcome would not be that wages rose to justify the current net worth. Rather, I think the evidence would support the idea that net worth would fall relative to wages. One piece of supporting evidence is that the real yield on the 10-year TIPS is negative. Investors are now willing to lock in a small loss over the next decade for fear of what alternative investments may yield. Another piece of evidence that supports this theory is that housing prices are still falling. And lastly, contrary to popular opinion the stock market is not cheap. It has more than doubled from the bottom found just a few years ago. We're now in squeezing blood out of a turnip mode. Good luck on that one.
2. From 1974 through 2006 we were on an unsustainable exponential growth path (as seen in the red trend line). Many believed they could extrapolate it forward forever. Note that hindsight shows that it could no more be extrapolated forward starting in 2007 than it could be extrapolated back into the 1960s. This trend has failed both going forward in time *and* going backward in time. There's no getting it back.
3. I'm not a fan of technical analysis. It's just tea leaves and crystal balls to me. That said, there is a head-and-shoulders pattern in the data and I have shown it on the chart. The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns. If you do believe that technical analysis has merit, then make of it what you will. I'll stick to points #1 and #2 personally, which offer the same conclusion.
Source Data:
St. Louis Fed: Custom Chart
11 comments:
Mark, your recent charts tell me that our country has run out of steam. What do they tell you ?
And lastly, contrary to popular opinion the stock market is not cheap. It has more than doubled from the bottom found just a few years ago.
Stag,
Right along with the stock market, oil prices have doubled too!
Win-win, NOT!
In Hell's Kitchen (NYC),
February 16, 2011
Has America's Economic Engine Run Out of Steam?
According to the McKinsey report, sustainable growth and economic competitiveness will only be possible if America takes the necessary actions to foster wider productivity gains in both the public and private sectors. In the past, labor force growth has constituted a large portion of US economic growth. With the retirement of the baby boomers, America needs to match these productivity gains through other avenues. In order to match the GDP growth of the past two decades, the US will need to increase labor productivity by 1.7 to 2.3 percent, representing a 34% acceleration in productivity. McKinsey explains that this acceleration must come both from efficiency gains and from increasing the volume and value of outputs for any given input.
If we were to automate every single job in existence (maximum productivity gains) what would happen to our economy?
The optimists see only good things. I see a somewhat darker picture.
mab,
Stocks doubled. Oil tripled!
It's a two-for-three-fer!
They say the best things in life are free.
That's why we need a Patriot Act to ensure America continues to be the land of the free.
In other news, it is officially Gallows Humor Monday.
Yeah, I feel a lot safer now that I can be detained indefinitely without a trial.
Can't we at least have Stalinist show trials? (Gallows Humor Monday!)
mab,
Yes! It's a modern economy! Encore! Encore!
Stag,
Modern eCONomy?
How about public-private partnerships? If seeing Wall St. team up with police doesn't make you feel more secure I don't know what will:
http://www.counterpunch.org/2011/10/18/wall-street-firms-spy-on-protestors-in-tax-funded-center/
mab,
Oh yes. That makes me feel *much* safer. Sigh.
Stag,
I think there's a silver lining here.
Since the evil-doers "hate us for our freedoms", I'm thinking they won't hate us as much now that our freedoms have been eroded.
mab,
Do unto yourself what others would do unto you.
Sounds like something that would be in a book somewhere.
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