From the Los Angeles Times:
If something cannot go on forever,” the economist Herbert Stein famously wrote, “it will stop.”
Stein’s Law, as that dictum and its variations have come to be known, originally referred to ever-widening budget deficits, though quickly expanded to include phenomena such as economic booms. We may soon watch the rule assert itself on both counts.
You need not search hard for trend lines that are reaching the near-forever stage. The equities markets, even after last week’s bloodbath, are still in the midst of the longest bull run (defined as avoiding a 20% drop from peak) since World War II. There have been 12 economic expansions in the U.S. during that time; 11 were shorter than our current 111 months, as calculated by the National Bureau for Economic Research. If growth lasts until next summer, we’ll break that record, too.
And did we put our houses in order after all that growth? Nope! “Consumer debt is at an all-time high,” reports American Banker, adding cheerfully: “The crisis did not teach us a lesson about the perils of borrowing too much.” Personal savings are down. And during the just-ended fiscal year, the federal government also ran its largest budget deficit in six years.
The trade war with China really kicks in after Jan. 1. The Grim Reaper is all warmed up in the bullpen, waiting for the opening riff from “Welcome to the Jungle.”
Yet some enthusiasts claim the sky is perfectly clear of storm clouds. Asked Sunday on Fox News whether there were any sign of concern, National Economic Council Director Larry Kudlow said, “not at the present time,” adding, “The economy is in terrific shape. We are in an economic boom. People thought it would be impossible. The reality is we are clicking on all cylinders. They are absolutely crushing it, profits are rising, confidence is up, blue-collars are up, wages are up.”
Bulls are right until the moment they’re wrong, and so far during the Trump presidency they have a far better track record than the bears. But what happens when the music finally stops?
Not only are individual Americans unprepared for this eventuality, being leveraged with historical amounts of debt, their governments at all levels are in even worse shape. Recessions dampen tax receipts while spiking demand for state services. But instead of using the economic expansion to prepare for that rainy day, politicians have blown record-size holes in their budgets.