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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.