Global Economy Gloom

Not much action in the markets on Friday. It was a helluva week, though. The global economy was brooding.

At the beginning it looked like Europe wouldn’t make it to the end. Yields were rising to dangerous levels. Greece was clearly bankrupt. Italy would fall too, unless Germany came to the rescue. And investors weren’t too sure about France.

But as the week progressed investors calmed down. Or, at least they got used to being frightened. “Maybe they’ll muddle through after all,” they said to themselves.

And so the week ended. Nothing decided. Nothing resolved. More questions than ever.

Now, almost everyone has come around to our way of seeing things. In report after report, we see global economists and analysts conceding that we’re in for a long spell of trouble. Official reports and estimates show next year’s GDP barely growing. Unemployment forecasts show the number of people without jobs staying high for years.

Most analysts now also recognize that 1) the real cause is too much debt, and 2) the feds can’t do much about it.

Here’s the New York Times with a typical hard-luck story:

Every year, young adults leave the nest, couples divorce, foreigners immigrate and roommates separate, all helping drive economic growth when they furnish and refurbish their new homes. Under normal circumstances, each time a household is formed it adds about $145,000 to output that year as the spending ripples through the economy, estimates Mark Zandi, chief economist at Moody’s Analytics.

But with the poor job market and uncertain recovery, hundreds of thousands of Americans like Ms. Romanelli (and her boyfriend, who also lives with his parents) have tabled their moves. Even before the recession began, young people were leaving home later; now the bad economy has tethered them there indefinitely. Last year, just 950,000 new households were created. By comparison, about 1.3 million new households were formed in 2007, the year the recession began, according to Mr. Zandi. Ms. Romanelli, who lives in the room where she grew up in Branford, Conn., said, “I don’t really have much of a choice,” adding, “I don’t have the means to move out.”

Ms. Romanelli, who works as an assistant editor at Cottages & Gardens magazines, is one of the luckier “boomerang” children who have found jobs and at least can start saving for their own place someday. As of last month, just 74 percent of Americans ages 25 to 34 were working. It is perhaps no wonder then that 14.2 percent of young adults are living with their parents, up from 11.8 percent in 2007. Among young men, 19 percent are living with their parents.

But even some young people who can afford to move out have decided to wait until getting on more solid footing. Prudence, not necessity, has kept them at home.

Jay Bouvier, 26, has a full-time job teaching physical education and health and coaching football and baseball at a high school in Hartford, near his parents’ house in Bristol. He could rent his own apartment — after taxes he makes about $45,000 a year, he says — but has decided not to. He says he will stay with his parents until he has saved enough to buy his own house.

“I have it pretty good at home, since it’s so close to my work, and financially I just feel like it’s smarter for the long run to buy,” he said. He says that living with his parents enables him to set aside about half of each paycheck.

“It’s like I pay rent, but to myself.”

You see, it’s not just the US or the global economy that has changed. So have attitudes. Hopes. Dreams. Plans.

“Markets make opinions,” say the old timers. This market is turning Americans into a nation of pinch-pennies and stay-at-homes.

Global Economy Brahmins

*** A man in India was marrying his daughter. His old friend attended the wedding and noticed that the husband came from a different, and inferior, caste.

“Doesn’t it bother you that he’s from a different caste,” he said to the father of the bride.

“What? Different caste? She works for the Morgan Stanley. He works for Goldman Sachs. Same caste.”

And now the global economy Brahmins are on the case. Monti, Draghi, Papademos… ‘technocrats,’ the papers call them.

And US. Treasury Secretary Geithner too. Right schools. Right jobs. Right responses. As head of the New York Fed he was right there when the biggest bubble in history was created. He made no objection. He raised no alarm.

And then, when the bubble burst he was at the scene of the crime again…with the rest of his caste. At the height of the crisis in ’08, Lloyd Blankfein visited him 39 times. He spoke to the Goldman chief more often than he spoke to his own chief — US president Barack Obama.

This elite caste invented derivatives and sub-prime mortgage debt. Now, they pretend to solve the global economic problems they caused.

At least in this gloomy world economy gold and oil are up.


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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