Why There Will Be No "Roaring 2020s" -- In Graphics

I've been hearing from a number of quarters that we're in the "Roaring 2020s." I've seen many headlines to that effect. Yes, it feels that way now because government spending (debt) is positively EXPLODING currently. I have learned not to underestimate the power of the Federal Collosus to "kick the can" with even more inflationism and unsound money.

Just this morning, thanks to outrageous incompetence at every level of government, inflation hit 10% annual rate last month. And bond interest rates are 0 to 1.6% per annum??  It's the biggest fuck-up in economic history, right on par with Zimbabwe. Thanks to troglodytes in our Gov't and the Federal Reserve; some of the biggest dumbasses in the world, America IS a 3rd world country and we're broke as hell. Just our unfunded liabilities are some $165 TRILLION---don't kid yourself those liabilities are debt! Add $29 T for the accumulated deficit and we're talking 10X GDP or 60X US Gov't tax revenue (income)!!

Additionally, the Federal Reserve continues it's emergency program of $120 B of monthly reserve money creation -- which is being used by banks to buy some of that government debt in order to keep rates from rising. And they probably can't stop any of this without everything falling apart.

But the surprising thing is that the data shows that the expansion of money (monetary inflation) or government spending does not create real economic growth. This is the fatal flaw of communists and socialists: they eventually fail.  In my opinion, it is extremely unlikely that our market, economic and societal future is anything but dreadful for much of the 2020s.  I'll explain why.

Market History

The historical comparison to the 1920s vs the present and what it says for the 2020s. First the markets: 

Fig 1: The 1920s Stock Boom Started with a PE Ratio of ~5x . Although the current PE is 44.1, it's elevated since we've just emerged from a recession. See the next figure.

Fig 2: The Current Market (trailing) PE is 44.1, but this is high since we're just exiting a recession. It'll come down to maybe 25x to 28x (just guesstimating) or historically very pricey.

Fig 3: The Period #1 is from 1910 to 1921 which includes WWI and the Spanish Flu. From 1920 to 1921, there was a severe depression that drove down stocks by 49% for that period (11 years). The ending Price to Earnings(PE) ratio for stocks in 1921 was 5x earnings or very low.  This set-up the stage for the roaring 1920s, ie., from VERY low valuations.  We don't have anything like that now!

Fig 4: Period 1, 1910 to 1921 saw a 49% loss of Stock Market prices with an end-of-period market PE at 8.5x (or 5x from Fig 1), The roaring 1920s saw huge returns where the Market PE went from 5x and ended at 19.7 with huge annualized GDP and profit growth. The next period was NOT good for markets (The Great Depression),

Market Indications and Summary:  From market history, secular bull markets start with low, depressed valuations, secular bear markets start with stretched and high valuations. According to Fig.4, our current valuations show a PE of 28 or so are stretched and high. Forward returns based on 100 years of market history say we're going to have a "bad period"soon. The rest of the story is in our declining economic conditions. 

Economic History - Everything Changed in 1971

 In my post 1971--The Beginning of the End. Massive Monetary Disorder I said the following:  

In 1971, Nixon ended this monetary arrangement (Bretton Woods) which ended gold-backed money. It was done at that time to enable the government to run deficits to fund the Viet Nam war without raising taxes to pay for it. As an immediate result, the US dollar plunged in value and our national debt and inflation began to skyrocket. A falling dollar soon caused the oil exporting countries to sharply raise oil prices in 1974 igniting a budgetary and inflationary spiral.

Then came decades of huge, unsustainable global imbalances in trade and debt, inflation, falling living standards, inequality, monetary disorder, instability, the rise of China, the Petro-dollar, endless wars, the massive military-industrial complex, a leviathan surveillance state, mega corporate monopolies, massive US government growth, government malfeasance and corruption, national de-industrialization, wealth inequality, the Eurodollar rise and fall, widespread US intervention and manipulation in nearly every global nation -- continuing to the present day. All fueled by easy (unsound) money and out-of-control spending.

All of the accumulated damage is discussed additionally in my pivotal post: Extremes in Unsound Money and Finance Will (Eventually) Lead to Catastrophe I discuss in the first 5 or 6 paragraphs of that post how the trends since 1971 will eventually lead to monetary, social and economic disaster/chaos. I suggest that we are already facing that chaos NOW and worsening into our future, ie., the next 2 to 8 years. I fully expect complete economic/social upheaval and world war with major inflation and market crashes of up to 80% declines in the decade ahead.

Now for the evidence for a very "bad period" lies ahead for the economy and markets ahead:

Fig 5: Economic Growth has been in a downtrend for many decades. Recent decades, after 1971 have seen inflation and declining wages for the bottom 90% of the population. Note that expected economic growth rate for the 2020s is estimated at only 1.5% or lower. This rate would be MUCH, MUCH lower than the 1920s

Fig 6:  Notice how 1971 (end of sound money) marked the beginning of huge government spending and debt. This is causing annual gains in GDP to decline.

Fig 7: The bottom 90% cannot keep up: they are increasingly going into debt. This trend cannot persist forever Fig 7: The bottom 90% cannot keep up: they are increasingly going into debt. This trend cannot persist forever

 

Fig 8: By definition GDP includes government spending, which is increasingly funded by debt. So, decades of recent "growth" is somewhat of an illusion. It's not organic. Debt does indeed do wonders, but there are limits for individuals AND eventually governments. That's why politicians had to get rid of sound money 50 years ago.  Debt just borrows growth from the future. But the future eventually arrives.

The Real GDP Stories

All of the following graphics from the US, China, EU and Mexico show how the entire world economy is slowing and the lost wages and lost GDP continues to add up despite all the "money" (debt) created and thrown around:

Fig 9:  US Real GDP Versus Government Deficits and Prior Baseline

Fig 10:  US GDP Versus Federal Reserve Balance Sheet and Prior Baseline --Stagnation

Fig 11:  US Real GDP vs Two Different Prior Baselines -- Stagnation

Fig 12:  Europe Real GDP Versus Prior Baseline- Stagnation!! Jobs are stagnate too.

 

Fig 12:  China Real GDP.  The entire world is stagnating due to monetary disorder, limits of resources and their costs

 

Fig 13:  Mexico Real GDP Versus Prior Baselines..Stagnation

All the Missing Millions of Jobs in the US:

Fig 14:  The Dramatic Labor Story in the US: the Labor Participation Rate Shows 21.6 MILLION  JOBS that are missing. Expect this kind of step-down after each crisis (see next)

Fig 15: The Labor Story is likely to get worse and worse--just like a never-ending Recession (Depression). The participation rate will keep worsening. Jobs will keep going "missing"

Fig 16: A reversion to the mean of Corporate Profits to Labor is very, very overdue. Labor's share will increase while corporate profits sink. Notice that corporate profit DID revert to means in 2001, 2009 and will again.

Fig 17: Wealth Inequality is Ominously Back to 1929 Levels. In the next crash, it will be the wealthy that lose the lion's share. They own 88% of the stock market.

 Remember this commentary from Doug Nolan at Credit Bubble Bulletin from February 26, 2021. It's applicable in our discussion and observing the current state of our country and markets:

Inequality, speculative Bubbles and manias, resource misallocation, wealth redistribution and destruction, and deep economic structural impairment are all consequences of years of unsound money. And it’s back to this fundamental flaw I’ve been railing against for too long: it is impossible to resolve Monetary Disorder and the fallout from unsound money through additional monetary inflation. It’s destined for catastrophic failure, and it was another week when inklings of a failing system were observable to those with discerning eyes.

It may be archaic and relegated to the dustbin of history. But one cannot overstate the peril associated with entrenched unsound money. An insidious corruption of price mechanisms over time jeopardizes the very foundation of Capitalism. And as Capitalism decays Democracy flounders. Society frays, while insecurity, animosity, anxiety, and the forces of distrust are left to fill the void. And as we continue to witness, the consequences of unsound money incite only more perilous inflationism.

 Other Relevant Gulfcoastcommentary Blogposts:

• The Economy is Nearing Collapse, Part 1: Exploding Government Desperation
• Tverberg: The Economy is Nearing Collapse, Part 2
• Tverberg: "Headed for a Collapsing Debt Bubble"
• Extreme Bubble Phase: The Fed Trapped in Repo, then QE. Either Inflate Bubbles or World Economy Blows Up
• 1971: The Beginning of the End--Massive Monetary Disorder
• How the World Got to the Edge of the Cliff
• European Banks and the Euro Will Destroy the World
• Our Dystopian Future: Recession Without End
• Rising Potential for a Financial System Collapse
• The US Economy on Life Support -- Masking Economic "Depression" 
• Rising Risk of Financial and Economic Chaos ' 
• Rising Risk of Financial & Economic Chaos, Part 2
• Repost from Jan 2018: Why Our Economy Is In Depression And Will Get Only Worse
• Extremes in Unsound Money and Finance Will (Eventually) Lead to Catastrophe
• Economic Stagnation Is Causing Unrest And Leading to Collapse
• America's March to 3rd World Status, Then Collapse
• Declining Global Money Supply Taking World Economy With It
• Big Picture View of the Brewing World Financial Crack-up
• More Debt Won't Work; Charts to Prove It