I've been peering into my Crystal ball again about the economy. This blog is being written to clear things in my own mind as much as to relay opinion.
The health care debate rages on....but there will be some sort of compromise solution which will make nobody happy in the vey near future. Once that hurdle is out of the way Obama will likely turn his attention to solving the unemployment situation. It's something he must get a handle on before mid-term elections next November or lose a lot of Democratic seats to the Republicans.
The unemployment rate is now at a little more than 10%, not counting those who have given up looking for work. Some analysts predict it may top out at 13%.
I believe increased productivity by industry will have an effect on the number of layed-off employees being recalled. The permanent downsizing of many manufacturing industries such as GM will also impact the need for re-hiring workers.
Store owners are eagerly looking forward to the Christmas shopping season hoping to see a turn around in their fortunes. However, the American public is not in a buying mood. They're banking cash and paying down debt.
This is good news....and it's bad news. It's good news that Americans are being more financially responsible, but bad news that personal financial responsibility (not spending) is dampening the engine of private enterprise.....which is needed to get the economy moving again. Look for a lot of store closings early in the New Year, putting more people out of work.
I'm expecting a tax hike for the rich will go into effect sometime next year, but tax increases for the rich won't reduce the deficit alone. I believe "Joe average" will also see an increases in taxes shortly after that. Federal, state and city governments will likely cut services and jobs as they try to stay afloat. Look for school closings, fee increases and more user pay services.
As the dollar declines in value, foreign debt holders (like China) may pressure the FED to raise interest rates. When that happens the dollar will likely rise in value which will dampen exports, make imports less expensive and lead to inflation.
As interest rates rise this will have an impact on home sales and the real estate crisis in many parts of the country could remain in place for years to come. Commercial real estate will likely take a big hit.
The US economy may have grown by 3%, but I don't see this as sustainable as the increase was propped up by government make work programs, Once the incentives are gone, we'll see another dip in the economy.
I predict that just about the time a degree of stability is returning to the land (and the world) oil prices will take a great jump and the price of oil will continue to rise fuelled by increased demand in places like China, India and Brazil.
In years to come I believe China will take over as the world's economic superpower, although incomes there will lag far behind those in the US for decades.
Trillions of dollars in US debt will weigh heavily on the backs of your children and their children. The baby boom generation is headed for retirement within the next decade and are living longer lives than ever before. Baby boomers make up the largest age demographic in America. They will no longer be in the work force. Their spending will be less, their tax payments will be less and their demands on the health care system, pensions etc. etc. will need to be underwritten by "Generation X" of which there are far fewer than baby boomers. It will be a case of the few supporting the many, while paying off a huge debt load at the same time. US manufacturing ans services will face greater competition from emerging nations. The imbalance in working age Americans may lead to more immigration of younger age people.
And the beat goes on....and on...and on.
But.......then again, what do I know!!? :-)
Thanks. Sincerely, David