The next ten years – 10 reason the US economy is in trouble

There are a series of new books out which talk about the next 100 years or the next 200 years, but that about the next ten years? There are short-term arguments for recovery and a stronger dollar, however, the economy is not healthy. The next ten years does not look good for the US economy. Do not worry, the good news is for you personally it can be a very prosperous time if you know see the trends. The purpose of this post is to simply outline why things are bleak for the US. I do not think the US is doomed. Further, the future is always unexpected. However, this is the way the US economy looks now for the next ten years.

Future of the US economy

  1. Stealing from children. An average couple that retires at the age of 66 will receive over 1 million dollars of health and social benefits from the US government. John Cogan in his article  millionaire retires next door calculates that it is 550,000 for social security and 450,000 for medicare. That 1 million dollars is paid for by whom? Cogan write “regardless of how much they have contributed, the hard reality is that the federal government has already spent it. No matter how deserving they are, it is younger generations of workers who have to come up with the money”. US fiscal and monetary policies are nothing more than a free lunch for the last generation with the burden being transferred to the next generation. It is a sinking ship, this can not be supported. The ship will sink it is a mathematical certainty.
  2. Top down economics does not work. I created this video to illustrate what happens when a government tries to fix the employment problem. Let me know what you think.
  3. By 2016 the debt will be 20 trillion dollars and interest payments will be higher than military expenditures. This is a bankrupt business model with no solution.
  4. The State budgets are in trouble – Here is an example why, some CA lifeguards earn between 100k and 200k a year. Why the state governments are in trouble.  Most government workers I know personally can not function in the private sector. I am sorry but it is true. They would only be able to work bagging groceries, but the ones I know make a lot of money.
  5. Quantitative easing or the creation of money with low-interest rates did not significantly improve the economy. Why? Because the economy is not an engine that starts and stalls and the pump can be primed. It is a lie.  There is no economy in the abstract sense, the economy is you and me.
  6. Keynesian economics is wrong and the stimulus did not work. In fact, the total impact of Keynesian economics was negative. In an interview with F. A. Hayek, Hayek stated that Keynes fabricated theories and changed ideas when it was convenient.
  7. I left the US almost ten years ago and things were different.  When I return now and then it boggles my mind how much the standard of living for the average American has improved disproportionately to the real growth. I remember when people lived in smaller homes and were not driving so much, with less expectational attitudes. That was only ten years ago. Now the bar has been raised and the average middle class American lives in a nice home with nice cars with another type of life than I remember. There is nothing wrong with that. It is just that where did this wealth creation come from? Credit.
  8. A personal look at the housing market.  I am considering buying a home, I have been on countless hours on real estate sites and all I see is excess. The inventory I have to choose from is so over supplied with foreclosures and short sales, it can not be absorbed by demand for at least another ten years. Just do a Yahoo real estate search for homes under 70,000 dollars in Florida and you will see countless homes, your search will time out in many cases unless you are more restrictive on selection criteria. I do feel sorry for the people struggling. But the reality is it was an economy built on air. Either prices will have to deflate or the currency needs to be devalued.To support the prices means you are helping the haves and hurting the have nots. Let the markets work.
  9. The US credit rating has been downgraded and is on alert for another downgrade. When an independent rating agency like S&P downgrades a company or country there is a reason. In fact Obama was trying to prevent or delay this downgrade for political reasons. The US is on Par with Greece in terms of spending and the debt to GDP ratio. The United Kingdom has a lower 85% level, the USA as we know has hit the ceiling of over 100%. This debt can not be paid off period. As an American I wish I could say the US dollar will hold value and even appreciate to in relation to other currencies.  However, the reality is in the long-term this will not happen. The dollar has some nice short-term potential but fundamentals will erode its value in relation to the Euro. China could start easing themselves off our currency.
  10. Nothing has been solved with spending. Debt has been absorbed by the Federal and State governments. But it has only increased exponentially. Consumer debt is also not in better shape, about 1/4 people are underwater. We did not grow ourselves out of this hole like projected. If you aggregate all debt, from consumer to local and state and federal we are sunk.

What can you do about the US economy?

Is there no hope? There is always hope. I believe that people find a way to make a profit in spite of the fact government leaders (Obama in particular) have no understanding of the way markets and economics work (if anyone disagrees please leave a comment). The net effect is a redistribution of wealth and a misallocation of resources and a long terms slow growth path. By 2021 we might be out of this if radical changes happen in Washington with the 2012 election or if the US can grow its way out with innovation. If not, the next ten years will be low paid jobs and tight personal finances for all but the top ten percent or government workers.

Your mission is to make money inspite of all the economic dark clouds, all this takes is imagination.

 

5 Replies to “The next ten years – 10 reason the US economy is in trouble”

  1. The end of the US as a leader of the world economic is a matter of few years for see the collapse and dead of this great nation. Mr Obama will be down on history like the president that destroy this nation. So the new order of the world will be the communist China setting the rules for everyone who depends on their money. China do not play a fair game so the world will see how a worse enemy it raise for lead the new macroeconomic that will be change everything that we know all the way that we live. Welcome to anguish everybody.

  2. Let me get one thing out of the way – I love reading this blog.

    However, ever since I started reading and contributing, all I gleam from it are comments from people down on America, especially down on Obama.

    Can we get one thing straight here folks? Whether you want to own up to it or not the economy was in absolute shambles when he took over. America was losing jobs to the tune if 700k a month and by March 2009 the DOW was down below 7000, GM & Chrysler had ten fingers and nine toes in the ground.

    Things haven’t improved? Conditions are worse? Since then the DOW has doubled, Chrysler paid back its entire loan, GM announced a few weeks ago that they are buying back all of the remaining stock that the Treasury possesses, all but Citibank have repaid their TARP and the Treasury will no longer own AIG. The Treasury estimates that it made $22 billion on the interest from the loans it made, Citibank notwithstanding.

    The national debt is a problem, no doubt about that. But were all of you complaining when Reagan took it from $900b under Carter to over $3 trillion by the time he left office? Were you all complaining when Bush 43 took it from $4 trillion to over $9 trillion? That’s a bigger jump than under Obama for crying out loud. One of the reasons, and I have written about it here, that the deficit has soared under Obama is because he put the two wars under the general budget. Bush had it hidden in what was called an “emergency supplemental spending bill”. It was not included in the overall US budget. Don’t believe me people, do a Google search on that very text and you will learn the truth. Hide those costs like Bush 43 did and the deficit won’t look nearly as bad.

    It’s OK to convey your thoughts but please be truthful and make truthful and educated statements. Not like “Obama is a socialist”.

    Last word. For all of you that are down on America, I’d be willing to bet you would have said the same thing in 1980 when stagflation, high interest and high unemployment plagued the land. That America’s best days were behind us and that it’s all downhill from here. Yes those were dark days but through American ingenuity and perseverance we came out of it and actually thrived since then. Yes there were a few hiccups along the way but we are in a lot better shape than back then. Although I didn’t support Reagan, I do echo what he said back then, that our best days are still ahead.

    1. Mark Biernat says:

      The best reason why the US economy is not in trouble is despite the government, there will always be clever entrepreneurial people that find ways to work around the massive wall bureaucracy thrown in front of them. There is always an opportunity to generate wealth. You can make money in a bull or bear market or economy.

      Yet are not taxes going up for everyone? Payroll taxes take a bite out of my paycheck. Is this good for growth?

      However, that being said, the economy has been on a slow growth path.

      1. high unemployment
      2. high debt both national and consumer
      3. we import more than we export
      4. slow growth in most sectors
      5. real income down
      6. wealth has decreased: housing, savings and investments down
      7. general confidence low

      There are more however, how can the picture be good if you consider these basic economic indicators?

      Yet you are right it is better to be positive and find solutions rather than look at the slow growth around you.

  3. Here are my responses Mark:

    “Yet are not taxes going up for everyone? Payroll taxes take a bite out of my paycheck. Is this good for growth?”

    Two years ago Obama requested that the employee contribution to Social Security be lowered to put more money in their pockets. This was a temporary request and the due date has come and gone. Keeping the rate low would add to even bigger shortfalls in Social Security since revenue would be down by hundreds of billions. Is that what you want?

    High unemployment – I agree with this but like I said previously, it’s better than what it was.
    High debt both national and consumer – Read my previous diatribe.
    we import more than we export – This has been the story since the late 80’s and I don’t see any way to curb it. If you were an American business and had to pay your workers $11/hr without benefits to make your company’s widgets, and then had the opportunity to have it made in China for $2.10 an hour, what would you do?

    Slow growth in most sectors – Things are definitely picking up.

    Real income down – Has been in decline since the 70’s.

    Wealth has decreased: housing, savings and investments down
    general confidence low –

    No doubt about it. Maybe American’s should look closer in the mirror now that the go-go 90’s and 2000’s are over. You know, the decade where poor schnooks were driving BMW’s and living in large houses because of “easy terms”. They would have had savings had they not pissed away every last penny on video games and flat screen TV’s.

    Things will get better, just give it time. A relative of mine had a heart attach and survived it. However, it took a couple of years for him to get back to his old, self after that massive shock to the body. Same thing with the economy.

    1. Mark Biernat says:

      I have never like doom sayers and I am do not want to be one. Your metaphor about a heart attack hit home as I have personally known people who have recovered from major physical stress. Good metaphor.

      Yet I think there is still a ways to go for recovery.

      My main message is let the markets work. If you let the markets work the economy must recover. Prices and demand will return to equilibrium. But the government prevents the markets from working.

      The redistribute wealth in a way that slows the recovery. The poor and middle class do pay for the government.

      You have so many points. But lets look at the first one. I am largely self employed so I pay both sides of the self employment tax and it really takes a bit out of my income. I am not rich and I pay. I can not afford a lot of basic things yet I pay. I would rather have myself control my social earning for the future instead of the a middle man called the government. I see a lot of people around me who are on social benefits somewhat well off, why I am working my butt off.

      Yes I think social security should be privatized. Problem would be solved.

      Unemployment is a macro problem and not something to be solved easy by either party. I agree it is about small business creating jobs. If the markets were let to work there would be no major unemployment.

      I guess time will tell. I will wait and see. I think the biggest problem will be the 1000 dollar a year bit or about 100 dollar a month increase in taxes to hit most families every month. If you are rich not problem. If you are middle class this will dampen the economy.

      However over all like the weather economics and elections are hard to predict and we will have to wait and see.

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