The strong emerging consensus is that we have many years of deleveraging ahead of us, to which the counterpart is likely to be a period of low capacity utilization and high structural unemployment. (For example, 44% of those polled at the BCA conference in New York this October believed that the US would experience similar problems to those of Japan for at least the next five years).
But it seems to me that in the private sector we have already experienced this for many years. It is hard to say that we have seen a proper liquidation in either the financial or government sectors – and to the extent a liquidation in those areas is unavoidable then that must surely lie ahead of us. But I wonder whether it is possible we have already gone through this in the non-financial private sector.
Hardly a sane person could be found to consider this feasible. But that is often how great moves terminate – they go parabolic and we experience intense extremes of sentiment that blind us to what is going on beneath the surface.
It is never easy to perceive where the growth is likely to come from. There clearly is a great deal of modernisation and repair required for US infrastructure. Also the agricultural sector and certain industrial sectors seem very firm. It’s hard to imagine continuing strong global growth will not feed through into final demand for US goods and services – particularly as marginal opportunities in the FIRE and government sectors remain subdued.
US Hourly Real Wages
US Capacity Utilization
Japan Capacity Utilisation (OECD)
US Non-Financial Corporate Profits / GDP (%)
US Farm Business Corporate Profits / GDP (%)