Why the Lost Decade Has Begun — and Why Most Still Don’t See It
May 18, 2025
Three years ago, while foreseeing what our economic future would be, we boldly wondered if a financial crash might be upon us soon.
Due to the long-term generational debt cycle, our argument was that the remnants of the 2008, 2012, and COVID crises—with their massive indebtedness and QE—would inevitably lead to bubble bursts and currency debasements. Causing a possible financial crash ahead, maybe even some collapses, marking the depth of the global transition crisis.
If we look at the Dow Jones (or the S&P 500) since then, three years later, rarely has it been so high. Even if the tariffs' turmoil has triggered a recent correction, those who invested three years ago in the DJIA have gained 17%.
A striking performance which has only reinforced the current sentiment that "this time is different", that markets' ascent is inevitable, and that they may rise forever.
Did we get it wrong?
Were we trapped in irrelevant doom thinking?
A deeper look at details, though, may give a quite different picture.
If the DJIA has indeed gained 103% in real terms, adjusted for inflation, since July 2007 (just before the 2007–2009 crisis), then gold has gained 216% in real terms over the same period.
This means that—formally—stocks have lost 36% of their relative value since then.
In the same way, gold has gained 57% in real terms since our original post in January 2023, while the DJIA has only gained 17%, meaning that—formally—stocks have lost 25% of their relative value since then—a worrying acceleration.
A strong confirmation that, despite apparent continuous financial growth, everything is going according to our worrying template of the generational crisis (1).
Are we a contrarian outlier with this foresight?
For two years, large institutions such as the IMF and the World Bank discreetly warn that excessive debt (325% to world GDP according to the IIF), inadequate monetary policies, geopolitical fragmentation, poor demographics, resource constraints, and disruptive technologies are constantly weakening global growth through 2030, ushering in the risk of a "lost decade."
Some prominent economists are much more worried:
- Former PIMCO CEO Mohamed El-Erian describes the current global economy as on a knife's edge of "unusual uncertainty," condemned to protracted stagnation if it fails to "re-engineer" its growth models.
- Bridgewater Associates' founder, Ray Dalio, warns that the long-term debt cycle is approaching a painful lost decade of deleveraging, with geopolitical tensions further weighing on economic prospects.
- New York University's Emeritus Professor of Economics Nouriel Roubini states that the world is on the edge of the "mother of all stagflationary debt crises," pointing to warning signs like record-level price-to-earnings ratios in the West (The S&P 500 Shiller CAPE (Cyclically Adjusted Price-to-Earnings) ratio is at 34,8 in the US, while the historical mean is 15), low equity risk premia, inflated housing and tech assets, meme-stock mania and crypto speculation as evidence of asset bubbles that will burst.
Is there a way out?
The (painful) cure is known: a "3% 3-Part Solution," as Ray Dalio highlights in his latest book "How Countries Go Broke." This should combine inflationary debt monetization, deflationary debt restructuring or default, fiscal discipline to reduce government deficits, investment in productivity, and ultimately restoration of monetary credibility.
A bitter potion that, even when well managed, typically takes a decade to solve. The later it is taken, the worse the transition will be.
Will our nations take the appropriate measures?
This requires popular leadership, courage, and determination. A mix that is unfortunately difficult to find in today's oligarchic democracies, with their complex system of power, split between those who know the system is doomed but strive to profit from it until it crashes, the ideologists who hope that more of the policies that never worked (such as MMT) will one day deliver results they have never delivered, and those who lack the courage to resist the lobbies blocking measures that may alter their privileges.
No wonder that powers often tend to wait for the last moment to react, until it is too late and the system collapses. Or are tempted by the flight forward: dramatizing the situation and trying to regain control through war (2). Both ending up in a dramatic and uncertain reset.
In the US, the new administration seems to acknowledge the situation, as we highlighted in "3 Shifts and a Dilemma." Trump's strategy makes sense for America (3). But will it succeed in this reengineering, which will take time to deliver results, while popular pressure for fast results is intense? Or will its policy shift, on the contrary, destabilize further the unstable equilibrium the world has rested on for two decades on the edge of the polycrisis? Ignite a supplementary shock that will worsen an already precarious situation, and end up in a deep and prolonged recession, or even an economic crash?
It's too soon to say.
Between inaction and excess, the path to reform is narrow...
One thing is sure: the crisis times are running full speed. In a world that is all the more unpredictable as it involves globalized exchange between multiple players, with strong human factors, butterfly effects and second and third-degree impacts are difficult to predict (4).
Whatever the outcome, though, we'll emerge in a few years, in a very different world.
In the meantime, it will be essential to guard our rear! As policy makers, business owners or advisors, and investors. As we highlighted in our "Mastering Antifragility" series, the most dangerous decade of the 21st century is ahead of us.
The next post in our new "Future Frontlines: Navigating the Forces of Change" series will be published in early June. Click here to subscribe >
(1) Our current times are all the most dangerous as we are at the conjunction of the 80-year generational cycle big debt crisis time, entrenched since Bretton Woods (well described by Ray Dalio in "How the Economic Machine Works") and the 150-year secular cycle crisis time, both worsened by the growing competition from new BRICS powers, and notably China (with a currency war Ray Dalio is also highlighting in "The Changing World Order"). To these already pressing challenges, the AI technological revolution and resource uncertainty add additional pressure.
(2) This is what happened during the 1929-1949 crisis times of the last cycle, as we highlighted in DEJA VU, with both the Axis powers and the US pushing to war. Contrary to its reputation, and as highlighted in books such as "The Roosevelt Myth" from John T. Flynn, Roosevelt pushed discreetly but firmly toward war since 1937, to turn around a crisis he didn't really succeed in solving with his New Deal policy. Interestingly, we see for 5 years this temptation of the flight to war in our modern democracies, whether it's against nature (such as with the "war" against Covid in 2020 that we highlighted in our Great Reset analysis), or against Russia or China. Fortunately, Trump's administration seems to be more inclined to economic than military confrontation today.
(3) With the MAGA vision, the new US administration's strategy is clear: Reducing bureaucratic overcomplexity and excessive spending (such as with the DOGE), making the debt sustainable (boosting the economy, re-industrializing, innovating, reducing the cost of empire, finding new resources, defending the dollar), and reducing the wealth gap to give hope and purpose to reunify a fragmented country.
(3) The situation is all the more complicated as its solution—in today's intertwined globalized world—would ideally require cooperation between multiple actors, especially the US and China: the US needs to reduce its deficits, increase manufacturing, and lower its debt burden, while China needs to reduce its surplus, increase domestic consumption, and manage its own debt. Unfortunately, both are at different levels of their own cycles and are in a frontal competition.
