The Future of the U.S. Economy and Why We’ve Still Got a Long Ways to Go



future of us economyAs I write this commentary, there is still no solution to the Fiscal Cliff situation. In all my assumptions about our budget for next year, I have decided to be realistic and assumed that our taxes will go up. Thank you Washington for dropping the ball.

Despite whatever efforts have been made, I question if any solution would really fix the problems that revealed themselves in 2008. In a sense, I wonder if we’re simply putting duck-tape on a leaky pipe.  Are we actually addressing the real problem? Consider the facts:

Has Progress Really Been Made?

On the surface, it would appear as though the future of US economy is recovering and we’ve made a lot of progress since 2008. The DJI stock market index has almost doubled from its lowest point, the GDP (gross domestic product) is up, and unemployment is trending lower.

future of us economy

future of us economy

But you’ve got to remember that most of that momentum was government funded. Take a look at the following chart comparing US debt and GDP:

future of us economy

Notice that as our country’s debt level increased, so did the percentage of debt to GDP. Basically from this chart, you could conclude that the only reason the economic wheels got turning was because of government spending.

The fiscal cliff threatens to cut that spending and thus bring things to a halt. The media is warning us that that would throw the economy back into a Recession. While no one (including myself) really wants the country to go back into a recession, I don’t really see how we can avoid one when nothing was ever actually fixed.

Consider this: When you take away the government programs, the stimulus spending, the various quantitative easing programs, did we ever REALLY exit the Recession? Would our GDP really be do high? I don’t think so.

In order to sustain itself, the economy has to be a naturally moving organism that is not dependent upon one sole contributor. In this case – the government.

So how do create a stable economy? Simple:

• Businesses need to have a natural flow of consumers to buy their products. They also need to be healthy enough to employ people as part of this process.

• Regular people like you and I need to be capable of going forth and naturally spending our money.

Those are the fundamentals of the economy. But yet, there is evidence to support that neither is really happening:

1) Median income has been little unchanged over the past few years while CPI (and therefore inflation) continue to rise. How can we naturally afford to buy more things if they continue to go up in price, and yet we aren’t making any more money?

future of us economy

2) And on that note, home prices have not seen a comeback. For many of us, our houses are arguably some of our most valuable assets as well as the largest purchases we will ever make. Yet, if most of us are under-water and unable to sell our houses for more than what still owe on them, then we’ll have little opportunity to do so. Thus, an important contribution to the GDP will be missed.

future of us economy

3) Despite the decline, overall unemployment is still higher than it has ever been over the past two decades. If we were really naturally fixing the economy, this rate should be lower because more businesses would be hiring.

future of us economy

Unless these fundamentals are corrected, we’ll only be putting band-aids on an already broken leg.

Of course, this is not a one-sided effort. As we evolve into our World Economy, Americans need to understand that the rules of the game are changing when it comes to being a world leader. Supply and demand has shifted many jobs. In order to retain our dominance as a First World Nation, we’ll have to get back to being innovative about we move into the future.

 

Still Optimistic About the Future of US Economy:

Despite the faults I point out, I am fundamentally optimistic when it comes to the future and long term prospects for our economy. That is why you will still find me encouraging people to plan and invest for the future.

It is my personal belief that the majority of the population does not want to suffer and will always find a way to right the wrongs of the few. We’ve moved past the Great Depression, inflation spikes in the 1970’s, Black Monday, the Dot-com bust, the Housing-bust, etc. And we’ll do it again.

Remember that the economy and investments are all cyclical. Even if taxes do rise and the U.S. goes back into a recession, that won’t stop me from doing what I need to in order to reach my goals. It just means the rules of the game will be different and I’ll have to adapt.

 

Related Posts:

1) Why Do Poor People Have Two or More Flat Screen TV’s?

2) What is Happening to the Middle Class?

3) What Will Be Our Next Economic Bubble?

Image courtesy of vichie81 / FreeDigitalPhotos.net

Comments

  1. says

    I do not share your optimism for the US economy.

    Unless you want to start paying $100 for a loaf of bread (due to excessive money printing) the only other way out of this mess is to drastically cut spending and/or raise taxes.

    As it stands at the moment the interest on the debt in the US is crippling any prospect of growth. I would like to see where the growth is going to come from?

    With an aging population and central banks the world over all racing to devalue their currencies against each other. The US stands no chance of making any significant recovery.

    Best case that I can see for the US is to do an Argentina and start fresh.
    Glen @ Monster Piggy Bank recently posted..Looking back at 2012My Profile

    • MMD says

      I wish I could answer where the growth is going to come from. Unless we get back to the basics and allow the middle class to churn the economy as we did in the past, I’m not sure how real any of this is going to be. However, I can’t agree with the US ever starting fresh. At best, we’d just keep limping along with a broken leg while nursing it back to health. There are too much world influence (both in business and in politics) here in the US for things to ever completely be overhauled. It would take either a very significant event or another power in the world rising up to challenge the US position.

  2. says

    I don’t know how optimistic I am for the US recovery either. I think everybody needs to look out for themselves. I think the only option for the government is to raise taxes and stop all of the stimulus spending.

    It’s no secret how bad off the government is. Hopefully the American people aren’t counting on the government to fix their financial problems because its not going to happen. Everyone has had enough time to get smart with their finances and hopefully they will be able to handle it if their tax bill gets raised.
    Alexa recently posted..Ideas for Paring Down the Toy ClutterMy Profile

    • MMD says

      I think at the very least, we all need to realize that “You” are the only thing you can count on for the future. The further you can go with understanding financial literacy and learning how to make the best out of any hand that is dealed to you, the better.

  3. says

    Great analysis! I would like to add my perspective.

    First, private sector creates jobs and not the government in a capitalistic society. Unfortunately, policies of past 4 years have done nothing but to add more power to our omnipotent government.

    Most of the recovery is due to Fed’s ability to manipulate interest rates and our government’s desire to spend money that we don’t have. While it may work in the short cycle, our future generation will pay dearly for this mistake.

    I believe that government ought to make environment conducive for the small businesses to succeed as, historically, that’s how jobs have been created in this great nation.

    We also need to lower the corporate taxes(highest in the world) so that more investments can be made to jump start our economy.

    For now, all the chatter in media about recovery is just that.
    Shilpan recently posted..How to Tap Dance to WorkMy Profile

    • MMD says

      The media is certainly is just a lot of chatter right now – no real plans on the table or in sight. I agree with a lot of your points, and especially on the issue that small businesses need to be allowed to flourish. If our S&P 500 is the same as it has been in 10 years from now, then what is our country really doing to promote competition and free-market economy to achieve the best price and best product?

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