The next few years
Posted by Mike Sylvester - 2/22/10 @ 10:33 pm - Filed Under Featured, Uncategorized
The last few years have been grim. Wages in the US have stagnated, the stock market has dropped, unemployment has increased (likely permanently in my opinion), and the amount of debt accumulated by our Government has skyrocketed.
I also think the next few years will be grim. I have to admit that the more I have studied the current economic conditions the more grim my outlook for the future has become.
I think that the following is likely to happen over the next few years:
1. The United States Government will continue to accumulate a staggering amount of debt. This debt will eventually cause the dollar to drop to levels not seen in many decades.
2. Many states and local Government entities (likely most) will continue to accumulate staggering amounts of debt. This will cause these Government entities to have to raise taxes and/or drastically cut spending.
3. The residential real estate market has been pummelled. I hope that the worst is over; however, there are millions of homes that will go into foreclosure in the next couple of years and this will ensure that the real estate market cannot recover for years.
4. The Commercial real estate market has also been pummelled. Unlike residential loans Commercial loans come up for renewal every five years. Every five years the banks re-evaluate the loans and can either call the loans or continue them. The interest rates on these loans generally “float” every five years. Quite a few of these loans are going to be called and this is going to ensure that the commercial real estate market cannot recover in the next few years. The vacancy rates and rents from commercial properties has plummeted and this will cause many commercial property owners to default on their loans.
5. I believe that the unemployment rate will be between 8% and 12% over the next couple of years. I think it is likely to hover between 9% and 11%. Many of the lost jobs are in the banking, real estate, and construction fields. I do not beleive these fields will return to pre recession employment levels.
6. Public sector pension funds are woefully underfunded. Public sector pension funds are likely underfunded by well over two trillion dollars. This is going to cause a lot of painful decisions to be made in the next few years.
I believe that there are several things that prudent citizens can do to “weather the storm:”
- Create a family budget. Ensure the the budget is written and that you accurately track your expenses and income.
- Build up a cash reserve that is 3-6 months worth of family expenses.
- Pay off your debt aggressively and do not incur additional debt. I truly feel that interest rates must rise and that wise consumers will pay off their debt.
- Maintain and if possible increase your job skills and your marketability. This is critical and most Americans completely ignore this.
- Start saving for retirement. Make this part of your budget.
- Work as much as you can and make as much money as you can. People often focus entirely on what expenses they can cut; however, the income side of the equation is equally important.
- Cut expenses. There are few Americans who cannot cut expenses. It is incredible how many Americans think that multiple cell phones, big screen TV’s, cable TV subscriptions, and eating out are “necessities.” It is amazing and pathetic.
Believe me I hope that I am wrong and the we enter a long period of stable economic growth; however, I truly do not think that this will happen.
Mike
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7 Responses to “The next few years”
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You are not wrong at all Mike. The only thing you may a fuzz low on is unemployment, it’s gonna go up and stay up.
Mike . . . you are absolutely right. Senator Fritz Hollings also got it right when he declared, “There’s just too much consumin’ going on out there”! But that may be changing as indicated here.
As for unemployment, the real (U6) unemployment rate is somewhere in the 17% range in 2010, and it is not going down anytime soon. Another “jobs” bill will not fix the problem. The bubble that will soon burst however is the unfunded unemployment compensation payments. In addition, with employment down, we are spending more money on Social Security and Medicare than we are taking in. this was not supposed to happen for another eight years.
Government has to back down its regulations and quit spending. The suggestion that government return the budget to 2007 levels is the simplest solution that I have seen. We can and have done without the spending levels now in place.
There is no such thing as “permanent” in politics or economics.
A prelude to my next post!
The prosperity and low unemployment of the last decade was fueled by massive debt in the public and private sectors. It’s hard to see how can get back to 5% unemployment without more borrowing. Without some fundamental restructuring, which will take time, we’ll just dig ourselves a deeper hole. So I agree we’re in for a long grind.
What it’s gonna take is a massive reduction in spending, and I certainly don’t mean we have to put people on the street or not feed the hungry. It simply takes a fundamental change in the way we spend government funds…
One example I like to use is the annual cost of Mark Souders “staff”. I’m not specifically picking on Souder, but on all members of congress.
Souders staff averages $1 million a year….take that times 535 members…gee ya think there could be some cuts in there?? There are always huge obvious examples like the junkets etc, but those are peanuts compared to the layers and layers of simply stupid shit that our government spends money on.
That’s just one example, I guarantee you if you went through EVERYONES budget from town councils up to POTUS and every government program in between you could cut a TRILLION dollars out.
Why is that so hard to comprehend?
Mike, for the most part I agree with you. However, my gut says that massive deficits will end very soon simply because the U.S. will be unable to borrow money from anyone. PIGS (Portugal, Ireland, Greece, Spain) are in deep trouble. These are not banks, but countries.
The US Deficit in 2009 was over $1.9 Trillion, forget what politicians have stated, look it up at the US Treasury. The National debt increased over 1.9 Trillion between 09-2008 and 09-2009. So far this year it is even higher than it was in 2009. I predict well over $2.4 Trillion in deficit spending in 2010.
Social Security is now running a negative cash flow as it did between 1955 - 1965, 1970 -1983. SS is unsustainable. Something has to give other wise SS will crash our economy. SS is no different than the $8,000 home buyers credit or cash for clunkers. It took future sales and spent it now. Until the value of this pre spent funds is recouped or absorbed, our economy will continue to sink.
Don’t even get me on Medicare.
As for cuts, the criteria for cuts is not millions any more, but trillions (one trillion is one million, millions).
I hate to say it, but I do not see us getting rid of congress fast enough to save ourselves.