When most people hear the term “Lost Decade,” they immediately think of Japan during the 1990s after it incurred its own financial crisis.Now, however, there are legitimate concerns that the US may be facing its own Lost Decade. In fact, we're already halfway through it. From the 1Q of 2006 to the 1Q of 2011, the US economic growth rate (GDP) averaged less than 1% a year. As I discuss below, we may be looking at a slow economy and continued high unemployment for several more years as consumers continue to pay down debt and curtail spending.
Clients and readers regularly ask me what it's going to take to get this economy moving once again. Normally the economy is growing at 5-6% by this point after a recession. But there are several dynamics that are different this time, most notably the fact that many of the 10 million US jobs that have been lost over the last few years are never coming back. There are numerous reasons for this, and I will point them out as we go along.
We will also revisit the issue of the debt ceiling. While the politicians working on this issue say they're making progress on an agreement, there's no hard evidence that the two sides are remotely close to making a deal before the deadline of August 2. While interest rates have been falling due to the slowdown in the economy, things could get quite wild in the financial markets in the weeks just ahead if the debt ceiling is not raised in time. Stay tuned.