[This post is a slightly-modified excerpt from a recent TSI commentary] The US economic boom that followed the bust of 2007-2009 is still in progress. It has been longer than average, but at the same time it has been unusually weak. The weakness is even obvious in the government’s own heavily-manipulated and positively-skewed data. For example, the following chart shows that during the current boom* the year-over-year growth rate of real GDP peaked at only 3.3% and has averaged only about 2.0%. Why has the latest boom been so weak and what does this say about the severity of the coming bust?
Before attempting to answer the above question it’s important to explain what is meant by the terms ‘boom’ and ‘bust’.
An economy doesn’t naturally oscillate between boom and bust. The oscillations are related to fractional reserve banking and these days are driven primarily by central banks. When I use the term ‘boom’ in relation to an economy I am therefore not referring to a period of strong and sustainable economic progress, I am referring to a period during which monetary inflation and interest-rate suppression bring about an unsustainable surge in economic activity.
Booms are always followed by and effectively give birth to busts, with each bust wiping out a good portion (sometimes 100%) of the gain achieved during the preceding boom. Putting it another way, once a boom has been set in motion by the central bank a bust becomes an inevitable consequence. The only unknowns are the timing of the bust and how much of the boom-time gain will be erased.
This post was published at GoldSeek on Monday, 21 August 2017.