{"id":10610,"date":"2014-08-15T22:38:37","date_gmt":"2014-08-16T02:38:37","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=10610"},"modified":"2014-08-15T22:38:37","modified_gmt":"2014-08-16T02:38:37","slug":"secular-stagnation","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2014\/08\/15\/secular-stagnation\/","title":{"rendered":"Secular stagnation?"},"content":{"rendered":"

Economic recovery after the Great Recession has been disappointing.<\/p>\n

Employment levels remain low. Official unemployment figures ignore the declining participation rate. Employment levels, in the 25 to 54 age group, for males remain roughly 6%, and females 5%, below their previous peaks. Using the 25 to 54 age group eliminates distortions from student levels and from baby boomers postponing retirement.<\/p>\n

\"Employment<\/p>\n

Manufacturing earnings, as would be expected, are also weak.<\/p>\n

\"Manufacturing<\/p>\n

Sales growth remains poor.<\/p>\n

\"Sales<\/p>\n

And real GDP growth is slow.<\/p>\n

\"Real<\/p>\n

US Headwinds<\/h3>\n

Stanley Fischer, Vice Chairman at the Fed, in his address to a conference in Sweden<\/a>, attributed slow recovery in the US to three major aggregate demand headwinds:<\/p>\n

The housing sector<\/h4>\n

The housing sector was at the epicenter of the U.S. financial crisis and recession and it continues to weigh on the recovery. After previous recessions, vigorous rebounds in housing activity have typically helped spur recoveries. In this episode, however, residential construction was held back by a large inventory of foreclosed and distressed properties and by tight credit conditions for construction loans and mortgages. Moreover, the wealth effect from the decline in housing prices, as well as the inability of many underwater households to take advantage of low interest rates to refinance their mortgages, may have reduced household demand for non-housing goods and services. Indeed, some researchers have argued that the failure to deal decisively with the housing problem seriously prolonged and deepened the crisis.<\/p><\/blockquote>\n

A slow housing recovery is unfortunately the price you pay for protecting the banks. By supporting house prices through artificial low interest rates, you prevent markets from clearing excess inventories.<\/p>\n

Fiscal policy<\/h4>\n

The stance of U.S. fiscal policy in recent years constituted a significant drag on growth as the large budget deficit was reduced. Historically, fiscal policy has been a support during both recessions and recoveries. In part, this reflects the operation of automatic stabilizers, such as declines in tax revenues and increases in unemployment benefits, that tend to accompany a downturn in activity. In addition, discretionary fiscal policy actions typically boost growth in the years just after a recession. In the U.S., as well as in other countries — especially in Europe — fiscal policy was typically expansionary during the recent recession and early in the recovery, but discretionary fiscal policy shifted relatively fast from expansionary to contractionary as the recovery progressed.<\/p><\/blockquote>\n

Anemic exports<\/h4>\n

A third headwind slowing the U.S. recovery has been unexpectedly slow global growth, which reduced export demand. Over the past several years, a number of our key trading partners have suffered negative shocks. Some have been relatively short lived, including the collapse in Japanese growth following the tragic earthquake in 2011. Others look to be more structural, such as the stepdown in Chinese growth compared to its double digit pre-crisis pace. Most salient, not least for Sweden, has been the impact of the fiscal and financial situation in the euro area over the past few years.<\/p><\/blockquote>\n

Supply-side<\/h3>\n

Fischer also cites the weak labor market, declining investment and disappointing productivity growth as inhibiting aggregate production.<\/p>\n

While I agree with his view of the labor market, we should not use the heady days of the Dotcom bubble as a benchmark for investment. Private nonresidential investment is recovering.<\/p>\n

\"ASX<\/p>\n

Productivity is also growing.<\/p>\n

\"Productivity\"<\/p>\n

Other factors<\/h3>\n

There are two factors, however, that Fischer did not mention which, I believe, go a long way to explaining slow US growth.<\/p>\n

Crude oil prices<\/h4>\n

In the last 4 decades, sharp rises in real crude oil prices have coincided with falling GDP growth and, in most cases, recessions. Crude prices remain elevated since the Great Recession and, I believe, are retarding economic growth. The blue line on the graph below plots crude oil (WTI) over the consumer price index (CPI).<\/p>\n

\"WTI<\/p>\n

Currency manipulation<\/h4>\n

China continues its aggressive purchase of US Treasuries<\/a> in order to maintain a competitive advantage of the Yuan against the Dollar. Inflows on capital account — not only from China — include roughly $5 trillion of federal debt purchased since 2001. This keeps the US uncompetitive in export markets and places domestic manufacturers at a disadvantage when competing against imports.<\/p>\n

\"Foreign<\/p>\n

Recent purchases of federal debt are sufficient to drive 10-Year Treasury yields through support at 2.40%\/2.50%.<\/p>\n

\"10-Year<\/p>\n

Glass half empty or half full?<\/h3>\n

Bears will no doubt seize on the headwinds to support their prediction of another market crash. I am reassured, however, that the economy has recovered as well as it has, given the difficulties it faces. None of the headwinds are likely to disappear any time soon, but progress in addressing these last two issues would go a long way to solving many of them.<\/p>\n","protected":false},"excerpt":{"rendered":"

Economic recovery after the Great Recession has been disappointing. Employment levels remain low. Official unemployment figures ignore the declining participation rate. Employment levels, in the 25 to 54 age group, for males remain roughly 6%, and females 5%, below their previous peaks. Using the 25 to 54 age group eliminates distortions from student levels and … <\/p>\n

Continue reading “Secular stagnation?”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[44,5,6,34],"tags":[1230,1323,1412,1744,1882,2608,2784,3062],"class_list":["post-10610","post","type-post","status-publish","format-standard","hentry","category-crude-oil-natural-gas","category-economy","category-fixed-income","category-us-canada-countries-regions","tag-employment-levels","tag-export-demand","tag-fiscal-policy","tag-housing-sector","tag-investment","tag-participation-rate","tag-productivity","tag-secular-stagnation"],"yoast_head":"\nSecular stagnation? - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Secular stagnation? - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Economic recovery after the Great Recession has been disappointing. 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Employment levels remain low. Official unemployment figures ignore the declining participation rate. Employment levels, in the 25 to 54 age group, for males remain roughly 6%, and females 5%, below their previous peaks. Using the 25 to 54 age group eliminates\u2026","rel":"","context":"In "Market Insights"","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"Employment levels","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-08-16-employment.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-08-16-employment.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-08-16-employment.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":10430,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/07\/28\/is-unemployment-really-falling\/","url_meta":{"origin":10610,"position":1},"title":"Is unemployment really falling?","author":"ColinTwiggs","date":"July 28, 2014","format":false,"excerpt":"US unemployment has fallen close to the Fed's \"natural unemployment rate\" of close to 5.5%. Does that mean that all is well? Chart: The unemployment rate vs. Fed's measure of \"natural\" unemployment rate (NAIRU) over the past 20 years - pic.twitter.com\/zq2fxtcHLt\u2014 SoberLook.com (@SoberLook) July 28, 2014 Not if we consider\u2026","rel":"","context":"In "Deficit Spending & Employment"","block_context":{"text":"Deficit Spending & Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"Employment Participation Rate","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-07-29-emp-participation.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-07-29-emp-participation.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-07-29-emp-participation.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13554,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/07\/09\/michael-pettis-secular-stagnation-will-last-several-more-years\/","url_meta":{"origin":10610,"position":2},"title":"Michael Pettis: Brexit could speed breakup of the Euro","author":"ColinTwiggs","date":"July 9, 2016","format":false,"excerpt":"https:\/\/youtu.be\/S0v_QWqqwn0 On secular stagnation: \"I don't see growth picking up until you either redistribute income downwards -- which is politically quite difficult and slow -- or developed countries which are credible borrowers engage in massive infrastructure spending -- which would be a great idea but politically difficult -- so I'm\u2026","rel":"","context":"In "China & HK"","block_context":{"text":"China & HK","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/china-hk\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/img.youtube.com\/vi\/S0v_QWqqwn0\/0.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":13117,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/04\/11\/low-interest-rates-and-secular-stagnation\/","url_meta":{"origin":10610,"position":3},"title":"Low interest rates and secular stagnation","author":"ColinTwiggs","date":"April 11, 2016","format":false,"excerpt":"Interesting observation by Pierre-Olivier Gourinchas, a research associate at the NBER: In recent theoretical work, Caballero, Farhi, and I show that the safe-asset scarcity mutates at the ZLB [Zero Lower Bound], from a benign phenomenon that depresses risk-free rates to a malign one where interest rates cannot equilibrate asset markets\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":25510,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/04\/28\/manufacturing-l-shaped-recovery\/","url_meta":{"origin":10610,"position":4},"title":"Manufacturing L-shaped recovery","author":"Colin Twiggs","date":"April 28, 2021","format":false,"excerpt":"March durable goods production came in at close to the 2019 high. The index at 120.8 is a similar level to the years preceding the 2008 global financial crisis (GFC). [Annual percentage growth results look spectacular but that is only because of the sharp fall in March 2020.] But construction\u2026","rel":"","context":"In "Deficit Spending & Employment"","block_context":{"text":"Deficit Spending & Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10657,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/08\/21\/dollar-surges-as-crude-falls\/","url_meta":{"origin":10610,"position":5},"title":"Dollar surges as crude falls","author":"ColinTwiggs","date":"August 21, 2014","format":false,"excerpt":"Dollar surges Treasury yields rally, but the trend is down Crude oil prices fall Gold uncertainty continues Interest Rates and the Dollar The Dollar Index followed through above resistance at 81.50, signaling a long-term advance to test the 2013 highs at 84.50. Recovery of 13-week Twiggs Momentum above zero strengthens\u2026","rel":"","context":"In "Crude Oil & Natural Gas"","block_context":{"text":"Crude Oil & Natural Gas","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/gold-commodities\/crude-oil-natural-gas\/"},"img":{"alt_text":"Dollar Index","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-08-21-dxy.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-08-21-dxy.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-08-21-dxy.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/10610","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=10610"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/10610\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=10610"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=10610"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=10610"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}