The Great Recession is a signal, like the crash of the Berlin Wall, that the very soul of the economy has shifted. What has changed, and what trends you can expect for the next ten years.
(Article updated June 3, 2010)
1. Federal Debt Means Lower Spending or Higher Taxes
Many economists predict the $13 trillion debt means the Federal Government will have to eventually raise taxes. Why do that when it can decrease spending? Expect lowered Social Security benefits in your long-term future.
2. Dollar Decline Continues
The large U.S. debt makes foreign investors concerned that the U.S. will let the dollar decline so the relative value of its debt is less. As a result, they are diversifying their portfolios with more non-dollar denominated assets, especially the euro. Result? Higher import prices, contributing to inflation, as well as lower export prices, spurring economic growth.
3. Economic Uncertainty Here to Stay
Business leaders have experienced a shift in the whole way they do business. They are buffeted by an onslaught of unexpected changes to their business, such as bankruptcies of key customers or suppliers, loss of bank loans, and decreasing demand. Many of them reforecast their entire business every month. Things happen so fast, this will be a required part of being competitive in an uncertain global economy.
4. Businesses Rely More on Part-time and Freelance Workers
Businesses are less likely to hire full-time workers for three reasons: 1) To keep overhead low, 2) To remain flexible in an uncertain environment and 3) To keep from paying higher health care benefits. To thrive, workers must create multiple streams of income, and remain flexible themselves.
5. U.S. No Longer World's Best Customer
Before the recession, the U.S. economy was driven by two things: debt and derivatives. The derivative bubble burst last year, and all we are left with is the debt. Both the government and consumers are maxed out, which means neither will be buying as much from China and other exporters. Guess what? These countries will have to develop their own consumer-based economy. To be competitive, U.S. business will have to learn how to supply the needs of emerging markets.
6. Home Prices Stay Flat Through 2011
There are 8 months of unsold homes, and 15 months of "shadow inventory" - homes headed for the foreclosure pipeline. Add it up, and it means housing prices won't start to recover for 23 months - or September 2011. Maybe people will decide where to live based on what they like, instead of the best investment option. Lower home prices also means folks can't use their homes as an ATM machine, using second mortgages to pay for homes and furniture. Result? - lower consumer spending, and slower GDP growth.
7. Everyone Keeps Working as Long as They Are Able
A recent Prudential survey showed over half of those aged 45-75 are being forced to delay retirement because of the recession.
8. China Becomes World's Largest Economy
It could happen. If China's economy continues to grow at its present rate of 9%, and the U.S. and EU economies grow at 3%, it would happen in 2019. Check out the calculations.
9. Emerging Markets Wield Economic Clout
Before the recession, the G-7 -- the leaders of the world's developed economies -- set economic policy. In 2009, this group was forever replaced by the G-20, which includes recession-resistant countries such as Brazil, China, and India. These countries were still robust because their banks were more regulated - something they are now able to push onto developed countries' financial systems. Watch for more leadership from emerging market countries in the next decade.
10. World Peace
OK, this might sound a little Utopian, but the $14 trillion debt means that the U.S. really can't afford to wage war anymore. Between 2006-2008, the total DoD/WoT spending was between $600 - $700 billion each year. In the FY 2012 budget, it is nearly $900 billion. War is expensive - maybe too costly to last through the next decade.
