Obama got reelected because Americans have settled. The majority has concurred that 8% unemployment and a $10 dollar an hour job with no benefits is the new reality. Well I do not like to be the one to spoil the surprise, but there is a brave new world, a new economy is around the corner waiting for the US, and Washington does not have the answers because it is beyond their control.  I am talking about the the great recession.

The blame is on the people of this country who hailed our leader when he speaks in the forum of the “new, wonderful good society” which will the change our country will see, which the people believe will mean he is leading us to  “more money, a easier and secure life for all” while we living fatly of the industrious – Cicero 43 B.C.

  • The good news is the economic balloon has already deflated. Crashes come after bubbles. We now are just stuck in the mud.
  • The bad news is the long run trend line is down because of global competition.
US GDP trend line

People are looking for political solutions to an eroding economic base. It is like we were a hot tube of water and now with global competition, cool water values are open and can not be turned off.

Democratic strategy – If you liked the lackluster growth of the past four years, hold on to your hats, some excitement ahead, but not the good kind. The financial cliff President Obama will lead us over. If we reach this financial cliff the economy will shrink by .5%. It is simple mathematics. The Democrats want to choke growth by a new taxes, transferring money from the productive to the entitled.

GOP Strategy – In contrast the Republicans wants to hold the line on taxes to prevent us from sliding back into the 1970s (considered the economic Stone Age by economic historians).

Which economic scenario will play out this year? – The intoxicating Democratic promises that won the election will bring us to a new reality. When neither the new math or the old math can reconcile the budget and the debt which is at a dizzying high, we will go into another deeper recession in the future. Now this is not for certain as GDP is recovering and progress in the private sector has been made (entrepreneurs will always discover a way), the question is is this sustainable? Can we get out of this mud or will it be another years of spinning our wheels.

Moving political chess pieces in the background –  The Democrats and the GOP will fight out the budget which is really about congress and some compromise will be reach somewhere in between regardless of the President. All the power in Washington is about the allocation of the budget, anyway (and the Federal Reserve bank). Symbolically it is a blow that Obama got re-elected, but the President needs the House to really move forward.

However, that being said will any of this really matter if the problem is not only in Washington but we are now longer the big isolated island of the USA, you know the one that was portrayed in the old  TV show Happy Days?

  • The reality is we are in a global market and the competition will only increase as more of the world is educated and connected. The only way to make the US wealthier is to let the markets work by giving entrepreneurs the most opportunity to compete, that is a small government sector and low taxes. We need to purse a more Libertarian economics or the whole country will be left behind.
  • China and India are not as rich as the USA, but that is not the point. The point is, the people there are bright and capable like Americans but get paid at a fraction of the cost. You do the math.

Recession factors

  • Monetary policy – Easing or no easing we have basically negative rates of real interest. This does not seem to help, it is like pushing against the wind. The interest rate environment could not be any better. If the economy is not moving there is a reason, a ghost in the machine. That is the machine of the economy should be working one way, but the some speculative unknown force controlling and dampening the actions of economics progress.
  • Fiscal stimulus – Rob Peter via debt, deficit, spending and the tax system and pay Paul.  In fact what if Paul is lazy and Peter is a job creator? Then we have a problem. This transfer of wealth engineered by the brain trust in Washington is not the best idea.  Yet even with turning up the dials in the C+I+G=GDP equation the machine is not moving in the right direction or in a predictable way. More like a Frankenstein economy.
  • Global markets – Enter the specter, China, India, Latin America etc.  Why pay you $40/hr (that is an $80,000 dollar a year job when someone abroad can do it cheaper. I am not talking about making toys to be placed in WalMart. Since the Internet and the fast seamless transfer of information, the interconnection of the human brain on this planet a fact, there is a transfers of information and skills without need for physical presence. Even if you do not feel it or see it, specialization of labor on an intellectual level that does need to hurdle import laws is happening. Jobs are outsourced and someone smarter can do your job better and cheaper. There is nothing wrong with that, it just is the reality of the world, called global competition.

After WWII and with communism, the world was in ruins. In the USA we were all winners and our fathers has secure jobs and pulled in the driveway at 4:30 in the afternoon, they retired to Florida with something called a pension.

Now the world is cheaper and we have more toys, but the job market is not secure and I see a lot of people carrying debt, car payments, mortgage and multiple credit cards.

What is left in the US economy?

Jobs that can not be exported easily..

  1. Retail jobs
  2. Medical care jobs
  3. Work for the Sheriff’s department
  4. Government workers
  5. Military
  6. Teachers
  7. Restaurant jobs
  8. Security guards
  9. Insurance companies
  10. Bank jobs

The problem with these jobs are they are not creation jobs. They do not create much value, but rather more service. They will not move the country forward.

Sure on Monster.com and Indeed you can find some boring  senior analysts positions specializing in vendor software or a project manager, but even those the price has deflated.

So do not expect to search Craigslist help wanted and find that dream job. Take a look at your hometown, does the above pretty much summarizes it?

How to protect yourself from the future economic problems in the US?

  1. Smart people always will prosper, you have to just use your creativity, which is almost synonymous with intelligence. Brainstorm, look around you get up early and search the web for hours until you think of some skill or asset you can offer.
  2. Do not think in terms of money but rather enjoying your life. If you think in terms of money, your life will be only a chase for something that takes years to achieve.
  3. Do not put too much hope in Washington, rather create your own opportunities.