The End of the World Has Already Begun
Disappearing Growth
Nothing much to report from the stock market yesterday. Investors are regaining their calm. A few weeks ago, it looked as though the end of the world had begun. We are talking, of course, about the world in which credit, stocks, and central bank reputations only go up.
Fated to eventually become a house of ill repute: the Mariner Eccles building (Fed board HQ)
Photo credit: AgnosticPreachersKid
But after a big fright in August, investors recovered their relaxed madness. They concluded that there was nothing to worry about. They may be right. You never know. But our guess is that the end of the world has already begun… and they just can’t face it.
The SPX, monthly – a proxy for the seemingly never-ending asset bubble. What if the end of the party is already here and people have just not noticed yet? – click to enlarge.
Since the end of World War II, credit has been expanding in the U.S. At first, it was a healthy expansion. Young, middle-class families took out mortgages and ran up bills on “charge cards,” such as Diners Club and American Express.
Then, in the late 1950s, came the first credit cards. This was accompanied by large increases in consumer credit. Until the 1970s, all was well, because wages were rising, too. And with so much new technology coming online, people believed their wages could only increase.
Debt was no problem – neither for the nation nor for households. We would “grow our way out of it.” But a strange – and as yet not fully understood – new trend began in the 1970s. After accounting for inflation, incomes for most Americans dramatically tapered off.
Total credit market debt, federal debt and GDP – a non-problem on its way to becoming an intractable problem … – click to enlarge.
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