Is Zero Growth a real possibility ?
With global stock markets zooming back to the moon, it almost seems as if the good times are back ! People are again complaining about having 'missed the boat' and how they should have seen the' recovery' coming. The big question though is, whether there is any recovery in the 'real' economy and if it is sustainable at all.
Too much attention has been focussed on how we are in the biggest 'depression' since the great depression of 1929. My problem is that was far far away and most of the world's population was not even born then and with advanced technology and economic progress how many of those lessons are valid in today's globalised economy. Sure there are many similiarities and many lessons that policy makers worldwide have learnt that seems to have brought back at least the stock markets back from the brink. The big problem is what if this global crisis has more in common with the long, relentless slowdown of modern day Japan where every economic dawn has been a false promise and almost 20 years after the Japanese bubble burst, stock markets are down 75 % and yet Japan remains the world's largest economy ! The scary part is the uncanny resemblance in policy that Western Goverrnments have taken to 'revive' their ' zombie' financial institutions to what Japan did in what is called the lost decade (more like lost generation one should say). Japan was widely criticised for 'propping up' failed institutions and large corporations in exactly the same way that is being done across the globe today.
The worrisome part is the outcome in Japan where a lot of these institutions still hang around like zombies and ever lower interest rates and larger and larger fiscal stimulas plans still have not gotten the economy out of the slump. Well, thats Japan some would say, its different... exactly what the Japanese said at the top of their economic glory days in the 90's that the rules don't apply to us. The rest as we know is history.
Problem seems that the giant all you can eat and drink credit bufet party has come to an end globally and in its aftermath are lots of dirty dishes (and dirty laundry) left over. It almost seems that a lot of the growth in the ' goldilocks' economy may have been phantom growth after all fed by one bubble ( internet bubble) to another ( housing) to another (emerging markets or rather submerging markets). It seems quite obvious that some of the ' smart money' was actually plain dumb money being fed credit lines on steriods and promising outsized returns on phantom profits and fictitious balance sheets. Problem now is can the world really adjust to ' real' boring growth rates without steriods ? The answer is probably not that easily. All efforts seem on to create another bubble and therefore talk of ' green shoots' whatever that means. Basically bankrupt banks keep' threatening' to 'give back' tax payer money so they can go back to ' risk taking' and paying out ' outsized bonuses' in the well established belief that they can always go back and beg for more funds when it blows up all over again.
Unfortunately, the real economy is not biting this time around. People are nursing wounds from their total wealth destruction in stock portfolios, fall in housing values, loss of jobs ( US unemployment over 9 % and people talking of 'green shoots').
We all hope that maybe the 'green shoot' types are right and sure at some stage things will stop getting any worse but that does not make for sustained growth. Fortunes will be lost in trying to bet on ' recovery' same way as fortunes were lost in trying to time the Japanese stock markets' inevitable' recovery that never happened in the past 20 years- so much for long term investing !
Reality is whether we like it or not, we are in uncharted waters and we are pretty much on our own. We will need to ask a lot of hard questions on career choices, business decisions and personal lifestyle choices based on the fact maybe the old rules may no longer apply. Or sometimes there may be no rules at all whether old or new ! 'Guaranteed' global growth was one such old rule that became the new paradigm in the ' world is flat' era! Lets be careful not to get 'flattened ' by it.
