Jeremy Grantham’s Depressing Prospects for US Growth

No commentary necessary here.  To me, this reads like one big “this time is different” piece.  Yes, I really think the balance sheet recession is a “this time is different” scenario, but as they say, this too shall pass….Some snippets via GMO:

“The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever. Yet most business people (and the Fed) assume that economic growth will recover to its old rates.”

Going forward, GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year,
and adjusted growth about 0.9%.

The bottom line for U.S. real growth, according to our forecast, is 0.9% a year through 2030, decreasing to 0.4% from 2030 to 2050 (see table on Page 16). This is all done presuming no unexpected disasters, but also no heroics, just normal “muddling through.”

Investors should be wary of a Fed whose policy is premised on the idea that 3% growth for the U.S. is normal. Remember, it is led by a guy who couldn’t see a 1-in-1200-year housing bubble! Keeping rates down until productivity surges above its last 30-year average or until American fertility rates leap upwards could be a very long wait!

Fun times.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:

  • Geoff

    Time to be a contrarian?

  • David

    I read this earlier on some other lesser quality site, and it’s got me thinking that all of these guys predicting the end never give credit to human ingenuity. Call me old fashioned but I fully believe we will come up with the next oil/steel/electricity/car/plane/internet/human genome/energy/ whatever to propel society foward in ways that we didn’t see it. Like most things it’s probably out already but needs to be refined. Looking foward to seeing what it is.

  • Dismayed

    “The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever.”

    No analysis? We’re just suppoed to acept this as a matter of faith?

  • Johnny Evers

    But Grantham is the contrarian.

  • Gary_UK

    Cullen says: ‘To me, this reads like one big “this time is different” piece. Yes, I really think the balance sheet recession is a “this time is different” scenario, but as they say, this too shall pass…’

    Actually, this time is exactly the same as all of the others. You remember, the dutch tulip bubble, the South Sea bubble? They all end eventually.

    This time it’s the debt-based fiat monetary bubble.

    Nothing ever changes, most never learn.

  • Cullen Roche

    You see a bubble in that chart? I don’t….If anything, there’s a bubble building in your beloved gold. But you probably think that’s “different”. :-)

  • Geoff

    Not at the moment. He seems to be as bearish as most people.

  • Johnny Evers

    Lot of bearish commentators maybe, but the stock market is pricing in growth.

  • GreenAB

    it doesn´t matter what kind of revolutuinary invention will come upon us. law of capitalism says that it will be produced where cost structure is the best.
    so as long China doesn´t hyperinflate wages the west will not be competitive and win those manufacturing jobs back.

    a next big thing in services (which the US economy is based on) is unlikely.

    and for the BS recession: – that´s not one of Granthams arguments.

    they are:

    -Population growth peaked in the 1970s, and man-hours worked will grow at around 0.2% per year.

    -Manufacturing productivity is high, but manufacturing is falling as a share of GDP. Currently it’s around 9 percent of GDP. He expects it to fall to around 5 percent by 2040.

    -Service productivity is low and declining.

    -Resource costs are rising, and are likely to accelerate. “If resources increase their costs at 9% a year, the U.S. will reach a point where all of the growth generated by the economy is used up in simply obtaining enough resources to run the system.”

    -Climate change will become increasingly unfavorable. He sees more floods and more damage to crops.

  • dr

    No one knows the future but to miss a major inflection point in history can destroy you.

    “Only the Paranoid Survive” Andy Groves

  • dr

    “we” meaning the US? Maybe but I do suggest you read the following pdf from Bridgewater:–ray-dalio-bridgewater.pdf

    In the last stage of the cycle they typically go through deleveraging and relative decline, which they are slow to accept.
    After bubbles burst and when deleveragings occur, private debt growth, private sector spending, asset values and net worths decline in a self-reinforcing negative cycle. To compensate, government
    debt growth, government deficits and central bank “printing” of money typically increase. In this way, their central banks and central governments cut real interest rates and increase nominal GDP
    growth so that it is comfortably above nominal interest rates in order to ease debt burdens. As a result of these low real interest rates, weak currencies and poor economic conditions, their debt and
    equity assets are poor performing and increasingly these countries have to compete with less expensive countries that are in the earlier stages of development. Their currencies depreciate and
    they like it. As an extension of these economic and financial trends, countries in this stage see their power in the world decline.

    These cycles have occurred for as long as history has been written

  • ES71

    To me the global wage arbitrage that is occuring is “this time is different”. It will not stop until some sort of equilibrium is reached.
    And US has much to lose in this process.

  • Geoff

    Thank your for enlightening us on what the market is pricing in.

  • REN

    Wage Arbitrage is a key factor. Capitalism will export goods from low wage countries, and charge a price just under the domestic cost. The arbitrage that is taken is skimmed off to the distribution cycle, to merchants, to dock workers, to polticos, to financiers, and to captains of industry.

    This mechanism must be operative, when it is cheaper to buy a Chinese made wood table in North Carolina, than to buy a domestic made table. Then one must ask oneself, “Does China have abundant wood forests?” No. In fact, practically no spare wood, they must import.

    In the U.S. the dollar as reserve currency means imports are often required in order to souce dollars to capital markets abroad. The U.S. must be a goods importer of last resort if dollars are to reamain as reserves. A race to bottom by low wage countries to acquire dollars thus ensues. Dollars are desired by foreign economies to stabilize their currency and to buy commodities, especially oil.

    Distributors and captains of industry skim arbitrage in the process of goods importation from low wage countries. Some of the profits go to bribe merchants to display the goods in preference over domestic manufacturers. (Skim and Skiff)

    Buying a wood – Chinese made – table in North Carolina is unnatural and cannot be explained by standard economic dogma. It can be explained by Capitalism seeking out low wages in order to take arbitrage. This does not help the high wage country who with formerly protected “uniform” markets, was able to create wealth using schumpterian competitive destruction. Money information feedback is accurate in a uniform market, not so when linked with low wage mercantilists.

    Allowing usury financial capitalism to have ascendency allows it to find new markets and to create non uniformity; this then then allows rents in the form of abritrage to be taken in a long term cycle. Expect cries of “free markets” and “No Tariffs” so the con may continue.

    Non uniform markets mean the high wage country is then hollowed out as former normal wealth buiding cycles are short circuited. New industry formation and its cycles of wealth building/learning goes to low wage area as long as abritrage is profitable. When it is no longer profitable, the rent seeking usury parasite will jump to a new low wage host. The market leveling arbitrage process can last forever, or until some catalyzing event changes the game. What cannot go on forever, wont.

  • InvestorX

    Well there is som evidence that post GFC the potential growth rate has declined. Even the Fed recognized it. Now 2% seems to be the level. Actually thr decline started post the tech bubble.

  • Hoffa

    Why does everything got to revolve around the Fed and Ben Bernanke?

    Personally I think that growth could be over 3 percent a year, if policy is right. However, then one must have reasonable fiscal policy.

  • Anton

    Yes. He is shorting human progress and ingenuity. No wonder he surrounds himself with such bears like Andrew Smithers who thinks that US stocks are 50% overvalued,, or he recently hired “Armageddon” James Montier (ex Soc Gen). Good luck to him. He will need it if his predictions come true. I certainly would trust Matt Ridley more on matters like this,

  • jt26

    For developed economies I think GMO has it right. The countries with lowish unemployment are commodities-oriented. The others are seeing increasingly accelerated income inequality. Neither is conducive to real growth with long-term competitive advantage. But, like income inequality, even if the average is bad; some things are above average … we just need to find those as investors.

  • jt26

    I don’t think GMO is shorting ingenuity, they and others implictly believe that technology improvements will hurt hiring, increasing the haves/have-nots (as they have for at least the last 15 years). The Fed will compensate by low rates forever, forcing even more hiring into low productivity housing and services industries. We might see low (real) interest rates and low (real) growth for a long time.

  • Gary_UK

    You have so little knowledge of history. Sad really.
    Good work on the gold jibe though…sigh.

  • The Undergrad

    Gary, no need to be so pompous.

  • SS

    Where’s the hyperinflation you’ve been guaranteeing for the last few years? It amazes me that cullen even lets you comment here given that he’s been right about so much and you’ve been so wrong, yet you still come here to insult his intelligence on a daily basis.

  • Gary_UK

    Well, I didn’t start to expect currency collapses until April last year, once I realised the usgovt has no way out.

    As to where it is, all you need to know is that is out there, floating around in the trillions of worthless derivatives and debts.

    Once confidence in Bennie and his printer has vanished, you will see it with your own eyes.

    I’m glad I know what I know, the timing is not important, early is so much better than late.

    But it is inevitable now.

  • Old Dog

    Grantham has become not only an Octo-bear but an Enviro-freak as well.

    He has no concept of what new energy producing technology applied in North America will do for US industrial competitiveness.

    The US consists of people whose very DNA is different from the rest of the world. Our ancestors (including recent arrivals) aren’t willing to put up with the status quo – they are innovators, inventors, entrepreneurs and have the capacity to be the hardest working labor force on the planet. The reason most of them came here was they were not willing to accept defeat. Inspite of all the complaints we still have the most open and transparent corporate system that exists – anywhere.

    Jeremy has become and environmental defeatist – and it is a shame – he is so smart and articulate but has surrounded himself with envirofreaks.

    This is a sad commentary on a once highly insightful and brilliant individual.

  • Andrew P

    I don’t think the fracking revolution will buy us more than 20 years. Fracking fields deplete very rapidly. But 20 years is still 20 years, and that can last even longer if real economic growth is very low. It buys a bit of time for the real breakthroughs in nuclear (and other??) energy that will be needed if there is ever to be a new golden age of growth.

  • Andrew P

    It makes sense if you assume that real growth requires real energy consumption growth.

    Forever is a long time though. I wouldn’t go as far as he does.

  • Andrew P

    You will know something bad is coming when Bennie retires. Remember, Greenspan retired in 2006. He KNEW what was coming, and dumped it in Bennie’s lap.

  • Andrew P

    Just wait until some mercantilist finds out how to genetically engineer and train weasels to do tasks that would otherwise require people. Factories with no human workers at all. They could build entire cities with weasel labor. Build space colonies with trained weasels. Perhaps, the excess people can then be converted to food.

  • Johnny Evers

    Robots and automation can do factory work and mining and farming.
    But hopefully we can build an economy on the things that only men and women can do in small groups or one-on-one.
    A nurse can only give a bath to one person at a time or help deliver one child. A teacher works best when the class size is small. A waitress can only work a half-dozen tables. A dentist has to take 30 minutes with every patient.
    And most of the jobs we need can’t be done by people in China. The nurse, the teacher, the dentist, the plumber have to live in the neighborhood and know their customers.
    To get there, we’ll have to decentralize our institutions and businesses.

  • Bond Vigilante

    And one Cullen Roche is agreeing to the “Muddling through” scenario. Right ?

    I agree. Three percent growth is something of the past. Why ? Just look at the demographics of the US.

  • Cullen Roche

    I agree to muddle through in the near-term, but I certainly don’t see it out 50 years from now….That’s just doom and gloom. Not rational in my opinion.

  • Geoff

    If you understand the US monetary system, and that the “scary” US govt debt isn’t really a problem, you can’t help but be optimistic for the future.

  • GreenAB

    here´s one tiny piece in the big picture of automation killing jobs, that could threaten a sizeable part of low wage service sector. a few days ago bloombergbw ran a story about a startup that is about to bring burger making robots to the market:

    “Zelman’s hardware incubator, Lemnos Labs, is funding Momentum Machines, which is developing a burger-making robot named Patty that can assemble a cooked burger and bag it in less than 30 seconds.”

  • Old Dog

    As one who spent a significant part of his career as an O&G professional working the Inter-montane Rocky Mountain basins I can assure you that the fracking revolution has only scratched the surface, has only been applied to the lowest hanging fruit.

    Most of those basins, from a relatively shallow depth are entirely saturated with high pressured natural gas. The potential supply is truly staggering. Anyone invested in coal or nuclear power generation needs to know those assets will become completely stranded in the next few years by clean NG fired generation.

  • Bond Vigilante

    Yes the US can print all the money it wants. But it can’t “print” new babies (a.k.a. consumers) “out of thin air”. Demographics is key to the developments in the future. E.g., in Japan the death rate is now higher than the birth rate and rising. In other words, the amount of consumers is shrinking, NOT increasing. Hence that spending in the future is BOUND to shrink, as well. No matter how much money the japanese government prints.

  • Bond Vigilante

    Even an estimate of 1% growth is extremely optimistic.

  • Bond Vigilante

    I continue to think that one C. Roche doesn’t FULLY understand the monetary system. And he fails to understand the power of human psychology and demographic developments. Demographic developments in the US explain (for a large part) why there was a housing boom in the US from 2000 up to 2007.

  • Bond Vigilante

    And then you won’t believe Kyle Bass either.