Salient to Investors:

Gary Shilling writes:

  • Persistently slow growth will NOT be the norm for years to come. When private-sector deleveraging is completed, real GDP growth will return to its long-run trend of 3.5 percent or more.
  • Productivity will return to 2.5 percent annual growth or more after deleveraging is completed, in 4 years or so. Productivity was higher in the 1930s than in the 1920s, driven by the new technologies from the 1920s.
  • Labor-force growth will return and the decline in the labor-force participation rate will slow when normal economic growth resumes.
  • High government debt does not depress GDP, as Reinhart-Rogoff contend, but rather the reverse – slow growth causes deficits and debt levels to rise. Rapid economic growth pushes down the federal debt-to-GDP ratio directly as the denominator rises. The debt-to-GDP ratio will fall significantly, as it did from 122 percent in 1946 to 43 percent in 1966, and in the late 60s and 70s, and in the 90s.
  • Slow economic growth, as from 2000 to 2012, pushes up the debt-to-GDP ratio directly.
  • The 800-pound gorilla in the room – Social Security and Medicare outlays for retiring baby boomers – will be solved by Washington when there is no other choice.
  • Technology – the Internet, biotech, semiconductors, wireless, robotics and 3-D printers – is in its infancy, and rivals the engines of the American industrial revolution and railroads in the late 1800s, and autos, electric appliances and radio in the 20th century. Only a third of the world’s population is connected to the Internet but 90 percent live within range of a cellular network.

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