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The following chart shows the natural log of nonfinancial corporate liabilities and equities. I'm using a natural log so that constant exponential growth can be seen as a straight line.
Click to enlarge.
From 1960 to 2001, the growth did not concern itself with inflation, interest rates, labor markets, wars, and so on. Barring several temporary short-term hiccups, it simply continued higher at a relatively constant pace regardless of economic conditions.
The dotcom bust then appeared. As seen in blue, it was different this time. The exponential trend failed and there was no recovery back to the original trend in black. What was lost, was permanently lost.
The housing bust came next. As seen in red, it was even more different this time. The trend failed and once again there was no recovery back to the original trend (either black or blue). What was lost, was permanently lost.
Let's zoom in for a closer look.
Click to enlarge.
I believe this trend will ultimately fail again and that what will be lost, will be permanently lost yet again. Those bullish on our economy over the long-term will ignore this dire prediction of course. They'll no doubt continue to point to the record cash sitting on corporate balance sheets, while conveniently ignoring the record liabilities that go with it. It is April Fools' Day of course.
This is not investment advice.
Source Data:
St. Louis Fed: Custom Chart
8 comments:
We are desperately attempting to hold on to historical growth rates that can no longer be sustained.
It will not end well (again).
That's my opinion and I'm sticking to it.
True true!. I believe we are dealing with debt saturation (ever increasing) on a widespread basis in the US. Wages haven't been close to keeping up with inflation costs for many years and we hit the wall in 07/08. TPTB tried to paper over the problem but low wage/lack of wages coupled with unsustainable debt (personal, state, national) is the trend breaker that keeps on giving. Historical growth rates (post mid 1990's) were debt fueled and that party is over. All that remains is the tab and a hangover produced by a lack of being able to service the debt.
Anonymous,
TPTB tried to paper over the problem but low wage/lack of wages coupled with unsustainable debt (personal, state, national) is the trend breaker that keeps on giving.
It is the trend breaker that keeps on giving!
Sigh.
These breaks in the trend lines appear to mirror the similar breaks in labor share, although I don't see the relationship. Fred
Fred,
Yes! Good eye!
Here is the ugly connection.
That's got bad written all over it. :(
Fred,
If people permanently lose their caeers (due to automation and outsourcing), then they can't afford to buy corporate bonds and corporate stocks. I think that's the connection.
We're currently doing okay (weak recovery at best). We won't be doing okay when the next recession hits though. :(
CR has this chart of the job recessions and the time it takes to recover the lost jobs - we're still recovering from the last one. What I find striking is that each job recession is progressively longer with the current one setting a record. The next one should be a real doozy! Fred
Fred,
I don't have any faith in long-term employment. Even the supposedly safe industries are being automated.
Construction is somewhat safe perhaps (until robots can build buildings), but only if jobs are created elsewhere.
Just saw Elysium. The hero built robots for a living. I couldn't get past the idea that his job wouldn't exist. If robots are policemen and security (as in the movie), then certainly robots could manufacture robots. He just kept doing the same repetitive tasks, which would be trivial for robots.
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