The new financial world will embrace quality over quantity
The age of easy growth is over, but that isn't necessarily a bad thing
Have we told you where we think the US and other developed countries are headed? No?Skip to next paragraph
Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. 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 The Daily Reckoning (dailyreckoning.com).
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Well, things won’t necessarily be so bad. In a few words: the lust for MORE will become a lust for BETTER.
Yes, the age of easy growth is over. You probably won’t make any money buying stocks. And your house will never return to the levels of ’05-’06. And oh yes…you may not be able to get a job.
But that’s the good news. We’ll deal with the bad news some other day. Today, we’re going to stick with this good news. People in the developed countries are going to stop thinking so much about GDP, which measures the gross amount of economic activity. Instead, they will be thinking about the quality of it. They’ll switch from thinking about their standard of living, measured in dollars or pounds or euros, and begin worrying more about the quality of their lives. They’ll stop competing to accumulate more than their neighbors; they will want better instead.
First, let’s look at what happened last week…and last quarter. It was the worst quarter for stocks and commodities since 2008. Worldwide, stocks lost 17% — or about $8 trillion. The Dow took a big drop on Friday, ending the quarter just under 11,000. Commodities were hit hard too — with copper surprising the experts by dropping more than they expected. Of course, the experts are always surprised. That’s what makes them experts.
But the fall in copper is significant. Because copper is what producers use to make things. If you make a refrigerator, you need copper. Ditto a telephone. Or an automobile. Or almost anything. So, when copper goes down it sends a message: the economy is slowing down. Most likely, the whole world is slowing down. And the US will be back in recession this quarter. In the last quarter, US GDP growth was clocked at 1.3%. This quarter, it will probably be negative.
Not that it particularly matters. It is probably more accurate to say that the economy never fully came out of the recession of ’07-’08. But no matter from what angle you look at it, the US economy begins to resemble the economy of Japan in the ’90s and ’00s. On-again, off-again recession…with a ZIRP (zero interest rates policy)…low yields…and a government that runs huge deficits in order to keep the economy from dying completely.
Yes, dear reader, the world is a lot poorer than it was in June. But back then people still thought the Bernanke team was engineering a ‘recovery.’ Now we know, recovery hopes were fantasies. This is not an economy that can recover. It has to die. Then, a new economy will take its place.
What will that new economy look like? Here is an article from the Wharton School that helps understand it:
Sandy used to eat lunch out five days a week, indulge in premium cable on-demand and duck regularly into Starbucks for $4 coffees. Then the recession hit, and business at the jewelry boutique she had just opened tanked. By the time she started her YesIAmCheap.com blog in January 2009 as a way to make herself more accountable for her spending, her business had failed and she was $105,665.31 in debt. Today, the 33-year-old New Yorker owes $85,605.73. She packs her lunch, limits movie nights to $1 Redbox videos and mostly opts for coffee from Dunkin’ Donuts — with the occasional splurge for a Starbucks pumpkin spice latte. “They’re small changes but they add up over time,” notes Sandy, who will not divulge her last name but shares the details of her finances online.
Moreover, she says she doesn’t plan to change her spending habits when the economy improves because she has “embraced the cheap.” Although she used to prefer the word “frugal” because she thought it sounded French, “it’s not as negative as it [once was] to be called cheap. It’s almost a badge of honor.”
After more than three years of belt-tightening, the word “cheap” is losing its stigma. Experts at Wharton and elsewhere say the recession has shifted priorities for consumers, who are now more willing to trade quality for a lower price. While some argue that consumers will go back to spending freely as good times return, others say Americans have permanently embraced a cheapskate philosophy, and are unlikely to go back to their spendthrift ways anytime soon.
Many people are also getting back to basics, rethinking what matters in life, and concluding that expensive products may not be worth the cost. Wharton marketing professor Cassie Mogilner, who studies the relationship between time, money and happiness, has found that time is a more “personally meaningful resource” than money for most people.
Our interpretation of these facts…
More is dead. Long live better.
Everywhere we look in the developed world, more no longer pays.
You can’t sell more products, because population growth is slowing…or actually turning negative.
You can’t build bigger houses — who’s got the money to buy them…or heat them?