The US Economy over the next five - ten years
Posted by Mike Sylvester - 10/29/09 @ 8:43 am - Filed Under National Politics
I am working on a series of posts that will discuss the US Economy and the direction I think it is headed in the next couple of months.
I personally think we have entered a period that will be similar to the “lost decade” in Japan.
In other words I think wages will be stagnant, unemployment will remain high, the stock market will not recover to peak levels, the dollar will continue to fall, Government debt will continue to pile up, etc.
I think that the Government will keep pouring money into big banks, Fannie Mae, Freddie Mac, etc. I think that the crash in Commercial Real Estate will start to resonate throughout the economy. I think everyone will soon realize that most Government and many Private pension plans are broke. I think Citi will file bankruptcy even after getting huge amounts of money from the misguided TARP plan, etc…
What do the readers of this blog think?
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3 Responses to “The US Economy over the next five - ten years”
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I think you are right on track Mike. It’s going to get a lot worse for a long time. It’s going to take another three to five years for the residential real estate market to recover. Especially if Barney Frank & friends have their way. We won’t hit a true bottom until they quit frickin with it.
It’s gonna get really ugly when the commercial real estate notes come due, watch out.
The perfect storm is brewing out there fed by rising national debt, falling dollar, Social Security, Medicare and the “government needs to take care of us mentality.”
It may not be the lost decade, but a repeat of the 70’s. It could also be a repeat of 1930 to 1941.
Double digit gains will not occur. Reagan spent money, cut taxes and grew the economy when the debt is not taken into account. The same is true of every president since. Each time they do this, they create a higher point from which to fall. The government continues to spin the economy as growing, but does not offset GDP by the accumulated debt that was added. Did we actually have a positive GDP increase? I would bet that the GDP was negative if the amount of borrowed money was included in the calculation
We have seen how Zimmer, Biomet and Medtronic’s have fared lately. Assets of seniors have fallen, curtailing elective surgeries. We now hear that spending this Christmas may be less than last Christmas (people are scared). We have over a 100% increase in the U.S. Savings rate, paying down debt with high unemployment. This all means spending is being reduced. This is not good for the economy or jobs in particular. This goes back to what I said earlier about the reported growth in economy. If savings is up (reduced spending => reduced sales), how can GDP be up?
Proposed cuts to Medicare are over $400 billion over ten years. This means reductions in reimbursement rates to providers, which means cost shifting to everyone else. In ten years we will have half the boomers who are left retiring. The surplus slush fund will no longer be available to reduce the perceived yearly deficit.
Unlike the 1930’s where the US was an exporter of oil, we are not insulated any more from higher energy (falling dollar). As the dollar falls, what will happen to investors in US Treasuries? Will they stop buying and become net sellers of treasuries? The only saving grace is we grow enough food to feed ourselves. Yet this may become the hard currency of the future and many in the U.S. may not be able to afford to eat as we do now.
The factors are Social Security, Medicare, Energy, Deficits, taxes, employment, inflation which I see as all negatives. What can offset these?
I wish you fortitude and insight Mike in tackling this issue.
On the Nightly Business Report tonight, Warren, head of the bail out stated that low interest loans to banks artificially disrupted the natural order. Banks that played by the rules, used sound judgement did not get low interest loan, only those willing to gamble others hard earned money. The size and amount of the funds given to banks, auto and others have dramatically disrupted the natural order. Reigning in monetary policy will be difficult.
Less than $2 trillion and Warren sees artificial disruptions. What about $25 trillion dedicated to two programs over 70 years that cannot pay promised benefits. Talk about disruptions, Social Security and Medicare are the two largest dissrutpive programs around. In my opinion Both Medicare and Medicaid have led to our healthcare crisis compounded by the wage freeze of the 40’s which promoted non taxable health insurance to workers. Now they want to extend tax credits for health savings accounts and to pay for insurance.
All these credits/exemptions reduce taxable income. We have over $12 Trillion in debt. Tax rates must increase or every government program must be eliminated.
Inflation may be low now, but look at the currency valuations. The dollar is slowly falling.