Photo: Antarctica:Tales of Ice by Kadavre Exquis
The meme is spreading.Previously we associated the phrase “ice age” with SocGen’s Albert Edwards, who uses it to describe this peristently miserable market and economic environment that’a chracterized the world for the past 5 years.
Now even Morgan Stanley’s top economist Vincent Reinhart is adopting it, as his latest weekly note refers to our “:ittle Ice Age” in the title.
Another month of tepid job creation should put to rest the notion that weather-related distortions were solely responsible for the recent run of weak economic readings. It is not the weather, it is the climate that is our problem. A severe financial crisis chills economic performance for a very long time.
The financial crisis wiped out the equivalent of almost two years’ worth of income from household balance sheets in 2008 and 2009. Because an important component of the lost wealth, homes, served as collateral, credit intermediation was disrupted. The already wobbly trajectory of federal debt was set further off course.
The ongoing pressure of balance-sheet repair poses a lingering drag on spending, especially as we cannot expect much help in that process from asset markets going forward. Despite recent progress, European officials have much more work to do to resolve sovereign and banking strains. Closer to home, US fiscal policy will move sharply toward restraint at the beginning of next year absent legislative action. As long as these significant risk events loom in our future, investors will lack the durable conviction necessary for sustained wealth creation.