Jeremy Grantham’s quarterly piece is out now and the important topic is the lack of growth in the US. The way that Grantham paints the picture – and I believe this is an accurate depiction – the US is not just suffering from a cyclical growth slowdown but faces a secular growth slowdown of monumental proportions, especially in view of the promises the US government has made to current and future pensioners. All of this is happening against a backdrop of eroding productivity growth that sets the US up for some difficult challenges ahead. And Grantham also discusses his view on peak resources and why he believes peak resources and environmental change are the biggest issues facing modern economies.
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Overall my view here is that the longer term secular outlook is not bleak but it requires governments to move away from infinite growth paradigms toward quality of life types of economic models. I don’t believe this kind of shift is possible without significant economic and political turbulence or without governments trying to manufacture growth via deficit spending, inflation and money printing. Because we are in the midst of a deflationary crisis due to high private debt, this creates a natural tension between deflationary and inflationary forces for the foreseeable future that should most benefit non-industrial commodities and precious metals as asset classes and least benefit large old-line industrial companies in developed economies.
Source: GMO (subscription required)