Paul Farrell Expects No Recovery Until The End Of Obama's Second Term... IF He Gets Reelected

Tyler Durden's picture

Paul Farrell's take on Jeremy Grantham's recent essay Seven Lean Years (previously posted on Zero Hedge) is amusing in that his conclusion is that should Obama get reelected, his entire tenure will have been occupied by fixing the problems of a 30 year credit bubble, and if anything end up with the worst rating of all time, as the citizens' anger is focused on him as the one source of all evil. "Add seven years to the handoff from Bush to Obama in early 2009 and you get no recovery till 2016. Get it? No recovery till the end of Obama's second term, assuming he's reelected -- a big if." Also, Farrell pisses all over the recent catastrophic Geithner NYT oped essay, which praised the imminent recovery which merely turned out to be the grand entrance into the double dip: "In his recent newsletter, "Seven Lean Years Revisited," Grantham tells
us why expecting a summer of recovery was unrealistic, why America must
prepare for a long recovery. Grantham details 10 reasons: "The negatives
that are likely to hamper the global developed economy." Sorry, but
this recovery will take till 2016

For those who have not had a chance to read the original Grantham writings, here is Farrell's attempt to convince you that Grantham is spot on:

But should you believe Grantham? Yes. First: Like Joseph, Grantham's earlier forecasts were dead on. About two years before Wall Street's 2008 meltdown Grantham saw: "The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it's bubble time. ... The bursting of the bubble will be across all countries and all assets ... no similar global event has occurred before."

Second: The Motley Fools' Matt Argersinger went back to the dot-com crash of 2000: Grantham "looked out 10 years and predicted the S&P 500 would underperform cash." Bull's-eye: The S&P 500 peaked at 11,722; it's now around 10,000. Factor in inflation: Wall Street's lost 20% of your retirement since 2000. Yes, Wall Street's a big loser.

Third: What's ahead for the seven lean years? Wall Street will keep losing. Argersinger: "Grantham predicts below-average economic growth, anemic corporate-profit margins, and other severe obstacles for the stock market. Over the next seven years ... U.S. stocks as a group will deliver annualized real returns between 1.1% and 2.9%. That's less than you might get putting your money in a CD."

Also, for those who believe they stand to win something in the Wall Street casino, think again:

Warning: You'd be a fool to trust your money with Wall Street during the seven lean years till 2016. Another 20% will vanish.

Fourth: Why will Wall Street kill the recovery, keep driving us deeper into a ditch till 2016? Last year Grantham asked: "Why is it that several dozen people saw this crisis coming for years? It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi, even Treasury Secretary [Henry] Paulson and Fed Chairman [Ben] Bernanke, none of them seemed to see it coming." The Pharaoh listened to Joseph. Our leaders are deaf. 

Yet for all those still too busy to read the collected thoughts of Jeremy, here is the Cliff notes version, courtesy of Farrell:

Here's my Reader's Digest version of Grantham's 10 handicaps that will "hamper the global developed economy, drag it out for seven lean years," forcing Americans into a painfully long, game-changing period of austerity and civil unrest. You can read his original at

1. Too much consumer debt; increased savings, spending drops

"We've stopped adding consumer debt, but the improvement is minimal. It would take at least seven years of steady reduction to reach a more normal level. Anything more rapid than that would make it nearly impossible for the economy to grow. More stimulus adds government debt, already a problem. But debt reduction in a fragile economy runs the risk of causing a severe economic decline. This dilemma may prove to be the central economic policy choice of our time. Not an easy choice. And no way that this process will be pleasant or quick."

2. Banks off-loaded trillions of toxic debt, increasing federal debt

"The most frightening aspect of the seven-lean-year scenario is that dangerously excessive financial system debt was moved across, with additions, to become dangerously excessive government debt, with levels of debt-to-GDP not seen outside wartime. The cure seems more like a stay of execution."

3. Stimulus failing, housing crashed, no appreciation, confidence lost

"The artificial lift to consumers' confidence from steadily rising house prices is long gone, unlikely to return soon, reducing our confidence in the nest eggs we thought we could count on for retirement. Further house-prices declines are more than a 50/50 bet. No more shot in the arm from construction. Stock prices are stagnant. These changed attitudes will last for years."

4. Banks undercapitalized, overleveraged; more trouble ahead

"Wall Street may have passed its point of maximum stress, but very bad things may lie ahead in Europe. Leverage and the chances of further write-downs leave banks undercapitalized, reluctant to lend. Unhealthy growth in America's GDP caused by previous rapid increases in the size of the financial sector has also disappeared, hopefully will stay gone."

5. State/local governments squeezed, tax revenues down 30%

"Runaway costs: average salaries and pensions went far above private sector in 15 years, now run into the brick wall of reduced taxes. Real estate taxes are down over 30%, unlikely to bounce back soon. The legal need to stay balanced means painful cost-cutting, putting pressure on an economy with few stimulus options left. A double dip would make it worse."

6. High unemployment; few tricks left to stimulate jobs

"Unemployment is high, suffering from the loss of kickers related to asset bubbles. The economy appears to have an oddly hard time producing enough jobs to get ahead of the natural yearly increases in the work force. Consumer confidence and corporate investing suffer."

7. America's trade imbalances are killing the dollar, our economy

"America must stop running large trade imbalances, they destabilize the economy. In a world growing nervous about the quality of sovereign debt, these debt levels have exploded. Adding new foreign debts adds risk and doubts to the system, threatening the dollar. Just as adding surpluses threatens the Chinese. The trick, though, is to reduce these imbalances so that the process does not reduce global growth. Rebalancing will not be quick, easy, or painless."

8. European governments crashing; incompetent management

"Europe suffers from incompetent management. Spain, Greece, Portugal, Ireland, and Italy allowed local competitiveness of manufactured goods to become 20% or more uncompetitive with Germany. The banking crisis was not the problem, so it'll never be easy to solve with a fixed currency. Unfortunately, Europe's problems are now part of America's seven lean years, guaranteeing slower than normal GDP growth and a long workout period."

9. Global loss of confidence in all currencies, including the dollar

"Rising levels of sovereign debt and problems facing the euro bloc and Japan are creating a loss of confidence in faith-based currencies. The world economy is a fragile system that will increasingly limit governments' choices in dealing with low growth and excessive credit."

10. Aging populations; rising Medicare, Social Security costs

"Possibly most important of all, widespread overcommitments to pensions and health benefits is a long-term problem overlapping with the seven-year workout, making the 'seven lean years' even tougher. Developed nations are aging, need more medical attention. Treatment costs are increasing, and are hard to limit or ration. No choice, hunker down, wait for a crisis."

Bottom line: America's facing seven lean years, a long, game-changing, painful recovery till 2016. But let's end on that positive note the Motley Fool's Argersinger promises: In spite of the dark forecast, there's a "silver lining, the saving grace Grantham calls it. The stock market might turn out to be a loser, but that won't be the case for 'high-quality' U.S. stocks. Grantham thinks elite stocks are poised to return as much as 10% a year or better."

Argersinger put it this way: "Grantham doesn't detail what he means, but I think it's safe to assume he's talking about large companies that have strong balance sheets, sustainable competitive advantages, stable or growing profit margins, and opportunities for growth," even in "seven lean years."

He picks seven stocks "that might make Grantham's cut." All are based on "the following criteria: Large-cap stock, at least $20 billion in market size; high profitability, an average operating margin of 15% or higher over the past five years; strong balance sheet, a debt-to-equity ratio of less than 50%; a dividend, not necessarily for yield but as a measure of financial strength." Solid picking criteria.

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fat tony slim's picture

re-elected? the credibility of this article just went into the crapper. America so stupid to do this one more time? if leaving the US

homersimpson's picture

Well, in all fairness, the libbies complained about W in the same way regarding his 2nd term.. but what these same libbies couldn't do is to properly use a voting machine in 2004. So, don't underestimate the stupidity factor again...

Suisse's picture

2006 was an economic boom time, things were great. The libbies couldn't really complain until things went South well after the reelection.

hedgeless_horseman's picture

How long did it take for the Roman Empire to recover?


SheepDog-One's picture

EXACTLY hedgeless! +1,000 for the brainy post this morning! Total implosions do not recover! We have no economy! We dont make a damn thing! 75% Borrow to Consume economic model is dead and its all we had! Next up- mass population is and always has been their only answer.

Now Im seeing the 'politics' bickering posts, and thats exactly where they want the sheeple to be! Diverted and bickering about their demican republicrat bullshit. So sick of it all, such a stupid country it deserves all that will happen to it!

fearsomepirate's picture

The USA is the largest manufacturer in the world.  It's not that we don't produce anything, it's that we consume vastly more than we produce because the government subsidizes credit, and the rest of the world subsidizes the government.

Millennial's picture

Actually we are third or fourth in exports, but you are right we consume and import way too much. 

DosZap's picture


The reason we import too much, is because the GLOBALISTS SOB's, destroyed our Mfg capabilities.Until, and unless we rebuild our blue collar industries(which will never be allowed),put solid tariffs in place to make Americans buy American....forget it,SOL.

Also, WTH do WE export?..........things the rest of the World needs or wants.

Not US.



Thorlyx's picture

Longer than the British Empire because they were less leveraged.'s picture

nice h e e l s babe. I want mine in glass.

fat tony slim's picture

things are really just back to normal....and we think its a collapse. because the altitude back to earth was so high. not 2006, try 2001 peak out. 

fat tony slim's picture

here is where survival of the fittest may help reduce stupidity. imo, every seasoned politician will gun for the oval office. i am convinced the senior polity is glad obi one ate the [ i am HOOVER] political sandwhich, shrimp, or whatever he eats. now the big dogs will come out swinging to grab the potential FDR, Lincoln, Jefferson, G Washington slot. i doubt Hillary even makes it into the finals. they are also rans.

the caliber of men like Newt, Romney, etc. will compete.

Glen Beck is hooking his car to the Romney train to sell more books exploiting a viable opportunity to make some decent money and make an impact in society. working to get his place in heaven, or whatever he thinks happens to him in the hot hot hot afterlife.  

DosZap's picture

Romney has no chance in Hell to be elected.

Until the stable stalls shithouse( D.C.)is cleaned out, there is no hope,none.

I hate no one, but when I see the Pols arguing, and making insane comments, like 2yr olds, it makes me want to vomit.

They think they are royalty, Rangel, that useless SOB, been there for life.Just a damned crook, see's everyone else's Sins but his own.Frackening Hypocrite.

Using every card in the book to stay.Should have been gone 20yrs ago.

Term limits were the answer, too late now.

When you have multi-millionaires encamped in the halls of power, the Citizen Servant is DOA.

Trundle's picture

Stupidity? Oh, you must mean properly programming the software in the Diebold voting machines to make certain that only certain votes (in 2004, only Republican votes ) are counted (Cuyuhoga County)!


Ripped Chunk's picture

Use a mail in ballot and pray that someone honest opens it and counts it. Electronic voting machines are useless.

DosZap's picture


DO not even go there...........

The Dead in Dem ChiTown have been voting for decades.

Holding the Polls open for minority voters AFTER official close.

Counting prison ballots, of felons, counting ballots found in a frigging trunk of a car.(should have been thrown out, no questions asked).

Every election when the Dems are in control, the US Military, miraculously doesn't get their ballots in time, IF at all.(Clinton did it, and so did Obammy).

Already starting the same shit for November!!.

Denying one the right to vote, or illegally allowing them to, should be a prison offense............5yr automatic.

Both are guilty, but the numbers and corruption is WAY in favor of the Socialists.



Mark Noonan's picture

Always count on the President being re-elected.  1992, 1980, 1932, 1912...that was it for the 20th century in sitting Presidents being defeated.

Mark Noonan's picture

Always count on the President being re-elected.  1992, 1980, 1932, 1912...that was it for the 20th century in sitting Presidents being defeated.

SheepDog-One's picture

fat tony, the american sheeple definitely are that stupid. Only problem with leaving is 1) Where to? 2) Dont really have the resources to set up in some foreign land, and who says its any better there anyway? I just say the human experiment has failed, really its too stupid to evolve, or even think for itself for that matter.

Azannoth's picture

I tend to agree, the human evolution has stopped dead in it's tracks, we need a major upheaval to start moving again, WW3? or an asteroid should do the trick, and the sooner the better

DosZap's picture


There is not, never has been any Human Evolution........

Want proof...just look at History.

Been the same for 6000yrs.

malek's picture

My first thoughts also (although this doesn't impact the article for me).

But the dems have the right to commit the same stupidity, as the reps who relected Bush II.
In my opinion a lot more politicians -actually most of them- should never get reelected into any position again.

MrSteve's picture

A bummer recovery, where the trip back up is no better than the trip down.

Leo Kolivakis's picture

Tell you what, if US voters elect President Palin next time around, there will be no recovery for the next 100 years!

Suisse's picture

Palin isn't the least bit popular in the U.S. Romney will probably get the ticket.

Ripped Chunk's picture

Romney! Now there is one of nature's natural nobelmen.  NFW

Developers's picture

and we'll still be fucked...yay!!

homersimpson's picture

I'm sure Palin wouldn't be dumb enough to think that printing money is the way to solve America's economic problems, unlike some Harvard grad in office.


Trundle's picture

Palin is strongly supported by Lynn Forrester de Rothschild, who is Evelyn's wife, y'know the Rothschilds of Federal Reserve Fame.

I hear they like to print money. 

Azannoth's picture

'Palin wouldn't be dumb enough to think' - she thinks ??? wow

The Rock's picture

You don't read this website enough.  Stop doing keyword searches on Obama or Palin.  Here's a quote from a recent article on ZH:

"America has been captured by a financial class that makes no distinction between parties. These barbarians have sucked the life out of a once productive nation by raping and pillaging with impunity while enriching only them. They live in 20,000 square foot $10 million mansions in Greenwich, CT and in $3 million dollar penthouses on Central Park West. These are the robber barons that represent the Age of Mammon."  --Jim Quinn

Instead, why don't you and the rest of you political trolls start "googling" keywords like Rothschild and its agents (Rockefeller, Goldman Sachs), Central Bank, Jeckyll Island, Federal Reserve, Alexander Hamilton, Freemasonry, false flag events, the link between the assassinations of Lincoln and Kennedy, the MIC, the pharmaceutical industry, and start learning about the true history of the Rothschild Central Banking cancer that has taken over the world for the past 100+ years and that Thomas Jefferson had warned about and fought against!

Where's Cheeky Bastard to lay the smackdown when you need him?  Is he still on vacation that those Europeans seem to have too much of?  Quality of life is sooo overrated!  OK, I'm just jealous.'s picture

Where's Cheeky Bastard to lay the smackdown when you need him?

OK, I'm just jealous. me 2.

he must of had his hands free from the senorita's to have some conversations yesterday. nice to read. probably in his second family home in zadar croatia. nice life cheeks, glad you beat that bad ass incurable disease. forgot what it was, cheeks to beat, testicles enlargement from to much asia woman massaging?

Internet Tough Guy's picture

I love foreigners who tell me how to vote. Mind if I pick your government, Leo?

Leo Kolivakis's picture

Are you kidding me? In case you never noticed, the US gvt has had a say in who governs many foreign nations. So excuse me if I opine on Ms. Palin and how reckless and destructive the whole US political scene has become. Divide & conquer is all these people care about.

homersimpson's picture

"the US gvt has had a say in who governs many foreign nations" Really? Iraq and Afghanistan is a "couple", not "many"... There are plenty of dictators, communists, socialists, and European/Latin/Asian/African leaders that would disagree with you.

Ripped Chunk's picture

Get a beer Homer.

South America

Central America

etc. etc.

piceridu's picture

Read: Confessions of an Economic Hitman...John Perkins...unfortunately, Leo is right this time.

Internet Tough Guy's picture

I'm all for the US staying out of other countries politics, and for them staying out of ours.

DosZap's picture


Let's be reasonable.

How in the hell could she be any worse?..........everone thinks GWII was a moron, now we have another moron, and a friggi Marxist,Socialist, Globalist to boot.

The programs HIS tenure has instituted has put us so far into debt, their is no ladder long enough to crawl out.

GW helped, but this SOB, is the worst president, and has the worst cabinet, and Czars, of any in my LONG lifetime.

And, their not thru, I mean really how can it get any worse?(as far as treasonous leaders?).

homersimpson's picture

Well if you pick a "socialist" one, then you've already picked it. I'm sure he'll advocate an HST for the US, too.

Treeplanter's picture

Wrong, Leo.  If there is also a free enterprise Congress we could see a boom in 2014.  Oil drilling, business feels confident to invest in jobs.  Wall Street gets cleaned up the way the Arctic Fox sent GOP big shots to jail in Alaska.  The big question is the debt.  Does Obama default Treasury debt or pass it on to the Thrilla from Wasilla?  The Loser in Chief's spending spree puts a monkey wrench in everything.  Just hearing about the free Obama phone for welfare people, 70 free minutes a month.  How's that for a new entitlement?

BobWatNorCal's picture

OMG, I thought you were joking about the phone.

It was passed by the Dem Congress just before Obama's election so Snopes declines to call it an "Obama phone". Otherwise, ...just wow...

Panafrican Funktron Robot's picture

Define a free enterprise Congress.  I haven't seen one, ever.



CosmoJoe's picture

It never ceases to amaze me how many people bought into the "Palin is a bimbo" hatchetjob that the left perpetrated. 

Seriously?  We are going to talk about Palin's intelligence with a President that doesn't know how many states we have, and can't form a coherent sentence without his teleprompter?  We won't even touch on Biden.

B9K9's picture

I sometimes get the eerie sensation that ZH itself is a CIA experiment and/or plant. Every day now, Tyler posts up a political story that, sure enough, brings out all the partisan emotions.

What this proves is that even amongst a minuscule percentage of the total population, in an environment composed of the brightest people & incubator of radical ideas, like Pavlov's dogs, people simply cannot resist the political bait.

Palin is a dope? Or is that Bush? Barry can't speak a coherent thought without his 'prompter? Are we in our current predicament due to the last 2 years, 10 years, or 30 years? Or since 1913? Or before, going all the way back to the BoE?

I mean, if these comments in anyway representative of the best we can do, then we are truly fucked. What these types of discussions & reactions tell someone looking at the panorama from a distant plane is this: Get.Out.Now.

Geez, the power-elite must look at all us dumb chumps as one watches chimps at the zoo fling shit at each other. No wonder they hate us and wish us dead.

CosmoJoe's picture

This isn't about partisan shit flinging, it is a comment to Leo's post.  Leo felt the need to drag out the popular mainstream media/leftist talking points on Palin and I am tired of it.  I think it's fine to disagree with Palin's opinions, policies, etc but can we please give the whole "SNL said shes dumb so she must be!" thing a rest?

Frankly it is disgusting how far the media has gone in taking an active role in politics, and more than that, it should concern people.  The media should not be a propaganda mouthpiece for the Government, they should be helping to keep the Government honest.

B9K9's picture

I am tired of it

Thereby proving my point. If you actually care about the artificial left/right, liberal/conservative paradigm, then you are actually missing the real bifurcation: the power-elite vs everyone else.

If you had been hanging around ZH for any length of time, you would know (a) Leo is a troll; and (b) his job is to incite reaction. Reverse the situation ie change the characters (which I expect at any time), and he'll get the same type of reaction from someone else on the so-called "political spectrum".

What you seem to fail to realize is that these points-counterpoints are nothing but fodder for the glass menagerie. There is only one truth: true wealth is represented by a democratic, organic arbiter regarding both storage & exchange value. All else is manipulation, including economic & political behavior.

Once you see through the haze, you will realize that all movement, other than a primary focus of keeping eyes on the prize, is just subterfuge & deceit geared towards making sure you lose.

Plainview's picture

CosmoJoe, I'm completely unbiased vis-a-vis American politics (and a foreigner to boot), I think Obama is an incredible failure and nothing like as smart as he'd like to think. But. If you think it's "the media" that is solely responsible for the idea that Palin is dumb you are completely wrong. Listen to her words, her vocabulary and her sentence structure, the communication of her ideas and beliefs; it is cringe-worthy at best and complete nonsense at worst. She is an intellectual lightweight at a time when America needs genuinely bright people orientating the country's key decisions. I don't know who those people are, I don't see them populating either party, but it's quite clear to me that Sarah Palin does not qualify.