This Used To Be The Future

Hugo Lindgren frets over the future economy. He talks with economist Gary Shilling:

Shilling concedes that it’s quite possible that GDP growth will briefly tick positive, driven by the mere refilling of inventories and modest relief from epic declines in consumer spending. Optimists might hail this moment as the great recovery come at last, but Shilling warns us not to be fooled. The recovery will hardly feel like one, because the American consumer is changing. “Consumers are going on a savings spree for the first time in 25 years,” he says. “They’ve run out of borrowing power. They relied on their stocks in the eighties and nineties to put their kids through college, early retirement, a few trips around the world. That’s over.”

Housing prices, meanwhile, will continue to drop, says Shilling, dragged down by the massive inventory of unsold homes. And we will endure several more iterations of the government’s bank rescue, as the problems ascend the financial food chainthe trickle-up recession. What started in subprime mortgages is now wreaking havoc on prime borrowers. The main feature in Shilling’s vision of the future is deflation.