mauldineconomics.com / By John Mauldin / February 9, 2013
A year ago, Dr. Gary Shilling published the influential book The Age of Deleveraging, which followed his earlier work,Deflation (1998); and in today’s Outside the Box he updates us on his thinking.
Deleveraging of the financial and household sectors has created a terrific macroeconomic undertow since 2008, eroding growth. Gary argues (against many of the talking heads in the mainstream TV world) that the deleveraging process for both these sectors has several years to run before it returns them to the long-term trend. He notes that QE is having only temporary and limited impact, as each round of easing by the Fed has propped up stocks only until a crisis in Europe or the US undermines incipient recovery all over again.
Now, this period of prolonged economic pain is giving way to competitive devaluations, as the major powers scramble to maintain a currency edge on their competitors.
The upshot is what Gary terms the “Grand Disconnect” between sluggish global economies and surging equities, driven by never-ending monetary and fiscal stimulus; and it is, as he says, profoundly unhealthy.