I will not profess to be an expert on economics, far from it, but what I think I do have is a sense of reality. My sense of reality is that the United States, if not the entire world, is heading into a depression similar to 1929. I base my prediction, not on fancy statistics on money supply, money multipliers, Keynes versus the Monetarists, rather I base my prediction of the future based on simple demographics. And there is only a single statistic one need to understand to see where we are headed. For our economy to remain vibrant, we need consumption of goods and services. Each dollar that is spent on consumption has a multiplier effect in the economy. So, when I purchase a particular good or service, that purchase adds money to the economy which in turn creates additional spending producing that good or service, and so on and so forth. So the impact of that single purchase has a ripple effect. Now… as one moves through life we go through purchasing stages. We start by purchasing our first home… which creates a stimulus. Think of the home as a “nest”… this nest is where our consumption begins. First we furnish the nest, then we fill the nest with children, and then we move up to a bigger nest, and again repeat the furnishing pattern. All along the way… we are consuming goods and services. Typically one is a net consumer of goods and services, ie we spend more than we produce, from the age of 20-50. This 30 year period I call the consuming years. From 50 until we die we slowly become negative consumers. From 50 and beyond we downsize our nests, the kids move out, and we generally consume far less goods and services. And in many ways we are negative consumers. WE save money, we invest in our retirement, and ultimately we live off our retirement savings plus Social Security. This brings me to my simple demographic statistic that tells me we are headed towards a depression. 1959 was the last year of the “baby boom”… the generation behind this “boom” is far fewer in number. Given this the number of “consumers” compared to “negative consumers” is reversed. We have entered a period where there is going to be far less consumption, and without consumption of goods and services, our economy will contract. Depending on how significant the drop in consumption, will impact the severity of the coming depression. Again looking at simple demographics, the “baby boomer” generation family size typically was 3-4 children, but the following generation saw family size more in the range of 2-3. This means consumption in the United States could drop by 25-50% simply based on population changes. Given this, a depression is unstoppable… and this depression will likely last for 5 years as the entire economy adjusts to lower consumption. In the meantime, home prices will collapse, the stock market will plummet, and unemployment will rise dramatically. My advice is to move to cash or commodities and away from stocks, homes, or similar assets. I hope I am wrong, but demographics are not favorable. And for god’s sake ignore your broker’s advice.
I can hardly believe my ears this morning. I actually heard a so-called reporter suggest that “nothing short of government stepping in and keeping investors whole will help those fooled by Bernie Madoff”. WHAT!!! Let me say it again for effect: WHAT!!! Where was the government when I lost 100’s of thousands on Enron stock or other investments. Not only was the government nowhere to be found, it NEVER EVER crossed my mind that for any reason, the GOVERNMENT would step in and help me with my losses. As I have written over and over, this Country is in serious peril if people continue to look to the Government to solve their problems. The Government is largely the reason we are in our current economic mess, and yet our dim-wit citizenry are actually looking to government to solve their problems. If the Government is good at anything… it is good at “screwing things up”. So, unless we want a complete economic meltdown, we should look to ourselves rather than the Government to grow ourselves out of our current economic mess.
What has happened to this Country I ask? During the Great Depression, those people didn’t look to the Government to solve their problems. Those people were true Americans. They gutted it out, finding ways to solve their problems on their own. Sure they suffered, but they banded together and found ways to survive. Ultimately, the Government got involved in a misguided attempt to assist the economy and boost the nation out of depression, BUT guess what? Most economists now believe that Government intervention actually prolonged the Depression. This country was forged out of shear hard-work and determination, but unless we return to those uniquely American values, I fear our entire economy is going to implode. And unlike the gritty Americans of the past, Americans today are weak, lazy and irresponsible. And these traits… bred through years of pathetically low expectations of our citizenry… could someday lead to a civil war merely for survival. If you think this sounds ridiculous or is far-fetched… think about the poor sap that was trampled to death beneath the entrance door at Wal-mart this past Xmas. The mob that killed that unfortunate person was battling for a “big screen” tv… can you imagine if this same mob was in need of food? WE need a dose of traditional family values in this Country and a return to self-reliance.