"Lost decade."
The phrase originally applied to Japan's stock market. Yet in terms of depth and scale, it more accurately describes today's markets and economy in the United States.
This became more clear than ever to me yesterday (Sept. 21), when I read a CNNMoney article titled "A Rough 10 Years for the Middle Class." Given the data it reported, somebody's rose-colored glasses must have substituted the word "rough" for the more honest "dreadful."
Median household income has fallen to a level last seen in 1996 ($49,445). That amounts to a seven percent decline in the first decade of the 21st century.
Some 46 million people live in poverty, a 17-year high. Fifty million have no health insurance. More than 14 percent of "all young people ages 25 to 34 are still living in their parents' homes," an increase in percentage terms since 2007.
And, of course, it's no surprise that these "losses disproportionately hit the lowest 60% of Americans, while the richest 40% actually gained wealth." But note well: The scale of this trend amounts to more than "rich get richer, poor get poorer." It's as if the realities of the past decade were actually grim enough to outperform the cliché.
What's missing from the article is the one word that could have done the most good, at least for those readers who "get" what it implies.
That word is deflation. As for what it implies, it's best to let Bob Prechter answer:
"When the [debt] burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts.... A downward 'spiral' begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash."
Stock prices have declined. Real estate prices have declined. Incomes for most households have declined. Who can reasonably suggest that these trends are unrelated? What responsible analysis of the economy can fail to include the word "deflation"?
The stock market was down a lot today, so these words may carry a stronger tone. Yet what really matters is the larger trend that's now driving the economy and financial markets.
The quote above comes from p. 91 of Bob Prechter's New York Times best-seller, Conquer the Crash (2nd edition). The book is literally more relevant now than the day it published. Nothing in print can better prepare you for the deflationary trend that's now accelerating.