The US Economy: Always Look on the Bright Side…

Some things in life are bad
They can really make you mad
Other things just make you swear and curse
When you’re chewing on life’s gristle
Don’t grumble, give a whistle
And this’ll help things turn out for the best
And always look on the bright side of life
Always look on the light side of life

– Eric Idle, ‘Always Look on the Bright Side of Life’

Today, we continue our showdown with Gary Shilling, John Mauldin and Justice Litle (who responds to our case below).

On one side: people who are looking on the bright side.

On the other: your editor.

On one side is a group of people – bright and well-meaning with facts and logic on their side. They say the US is headed into another period of prosperity, led by better demographics and more energy.

On the other side is your Rogue Economist…with his own view. He believes the US is galloping toward a Zombie Apocalypse – led by the Pentagon, Congress, government parasites, and conniving, crony capitalists coast to coast.

Who’s right?

Perhaps this is a good time to ‘fess up…and admit that we were completely wrong about the trend we saw developing in late August.

So far at least, US stocks are still going up. And gold is still going down. The exact opposite of what we believed would unfold as the lazy, hazy days of summer gave way to the more frenetic, earnest trading days of fall.

Will these trends continue? Or is Mr. Market merely messing with our minds…waiting for us to drop our guard before he makes his move?

We don’t know.

Your editor, by the way, gave President Obama a chance. He announced his willingness to serve the United States of America as the next chairman of the Federal Reserve System.

One way or another, the Fed’s mainlining of beaucoup credit has got to stop. And when it does, there’s going to be hell to pay.

No economist with a reputation to protect will be willing to do it. Instead – whether it’s a Yellen or a Kohn – they’ll waffle and hedge…fudge and prevaricate…until the whole Titanic hits an iceberg.

Not so with your Rogue Economist at the helm of the Fed. We’ll take our hands off the wheel…and let Mr. Market have his way. The results will be breathtakingly horrible as investors panic…the economy sinks…and the zombies are flushed out to sea.

But it will only last for a few months. The serious business people and investors will wash ashore…ready and able to begin rebuilding on a much firmer footing.

So far, our Commander in Chief has resisted the temptation to pick up the phone.

Hey, Barack: One call and your financial troubles are over. With the Rogue Economist on the case, your worries about a soft recovery will soon be history.

Heh heh. But that’s a story for another day.

Our story today: One group of economists and analysts has become optimistic. They see the glass as half full. The other group comes along and drinks it. Bottoms up!

Yes, dear reader, here’s Gary Shilling with more reasons the US economy will be a world leader in the years ahead:

Americans have little choice but to save more. They no longer trust their stock portfolios as they did in the 1980s and 1990s to substitute for saving out of current income to educate their kids and finance early retirement.

The nosedive in house prices after heavy cash-out refinancing of mortgages and home equity loans has removed much of the home equity they earlier used to finance oversized spending. The postwar babies have been notoriously poor savers and desperately need to keep working and save much more for their old age.

As the saving rate rises, spending will grow more slowly, the reverse of what occurred when the saving rate slid from 12% in the early 1980s to 1%. That drove consumer spending growth about a half-percentage point per year faster than after-tax income and fueled the domestic economy.

Now, that’s looking on the bright side! For the last 30 years, America’s prosperity has been floating on a rising tide of debt. US households now have to face reality, says Shilling.

He could say that their standards of living must decline – as they are forced to pay for things they consumed years ago. Or he could say that the US economy will remain locked in the doldrums…or that fewer Americans will find jobs.

But no. Gary takes those lemons and makes a truly disgusting concoction.

US savers will now be socking away about $1.2 trillion a year, he reckons.


But wait. Where will that money go? To fund federal deficits!

Think about that, dear reader. Instead of wasting foreigners’ money on their zombie wars and leechy giveaway programs, the feds are going to spend the savings of the American public.

If this is the glass half full, give it to us empty!


Bill Bonner
for Markets and Money

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From the Archives…

Emerging Markets Walk The Tapertalk
6-09-2013 – Nick Hubble

House Prices Halve Without a Recession
5-09-2013 – Nick Hubble

A Manufacturing Industry Revolution
4-09-2013 – Nick Hubble

How the RBA is Using Low Interest Rates to Destroy Your Wealth
3-09-2013 – Nick Hubble

Is the Stock Market Predicting War?
2-09-2013 – Nick Hubble

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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