I’m beginning to think that despite some signs of a slow recovery, that the U.S. Economy might not have a nice future in the coming years, even if the Eurozone doesn’t experience some kind of default, fallout, or break-up (an important topic for another post). The Eurozone itself is dangerously close to recession and on a path of stagnation. In the past couple days we’ve learned China’s economy has grown at its slowest rate in 2.5 years, basically since the global economic crisis. We should not expect China’s economy to grow at its recent high rate. It has even been suggested it might grow at half the highest rate. In India, another emerging market, because of political stalemate and credit crunch in Europe, we might see their economic growth slow at the hand of slowing foreign investment from Europe.
We see there is a strong possibility of Economic slowing on the Global level. So it is clear that the outlook would also not be good for the U.S. economy, as a declining global economy lowers the incentive for U.S. and U.S. based multinational firms to invest in the real economy, and make loans to small business where there would be the best chance for economic growth and better employment. This is mostly the case of timid capital flow into the economy as we await a real solution to the Euro crisis, as well as an expectation of a still stagnating global economy in the future. But there is a strong case for more economic decline based on domestic factors.
I should note that some of what I may mention are extremely pessimistic notions of our economic future sourced from rather a counter cultural political source, Z magazine. They are after all heterodox economic predictions, but the figures are accurate.
One of the largest problems facing the U.S. economy, is the possibility of a true recovery in the housing market. After all an inflated and bubbled housing markets is what led to the severe impact the mortgage securitization market’s failure had on the real economy. The high growth of the housing market put a lot of houses on the market, and even during the bubble, there was more houses than housing customers. It also put a lot of poorly credited people in houses. So when the the fringe of the mortgage market collapsed and pulled out the rug from under the rest of it, prices dropped, home value dropped, people’s home’s were worth less than what they had to pay. As the housing market continued to fall more people got behind on their mortgages as they lost their home’s net worth. Home market values are approaching a 40% loss on their highest valuations but are not there yet, but will get there with a continued 5-10% decline. There has been 11 million foreclosures, and can be expected to go past 13 million. There are 58 million mortgage borrowing home owners, and possibly 17 million of them will reach negative net worth on their homes. You can expect that the fraudulent record process of the mortgage and securitization market, will not be scrutinized by law, and banks will only have to pay relative pocket change of fines as punishment for their behavior during the bubble and not have to admit any wrongdoing. So there for the homeowners will take the economic hit for the stagnated market, and there will be no financial reform. Thus a mass of the consumer market will not be able to spend and boost aggregate demand, and continue a cycle of low incentive for economic investment.
We will also see in the next couple years, in the attempt to reduce a bloated deficit, as the overly focused on concern, dramatic cutting to Government programs. Programs that put a bottom on a dysfunctional economy, by supporting some of the lowest class and other people financially struggling, keep any small amount of money flow in the economy. As programs that serve this function are cut (social security, SNAP food stamps, medicare, medicaid) the economy will stagnate more. This will also happen on the state and local level with poor finances. State welfare will be cut, taking more money out of the economy. A huge amount of stimulus in the past have been tax cuts for the wealthiest in industry and big finance, who are in turn not investing in the economy. There will not likely be any other federal stimulus programs that serve to add more money flow into the economy or any significant efforts to help struggling consumers, especially in the housing market. These progressive ideas that have a history of working, including during the Great Depression, will not be likely because of political radicalization against democratic ideas and more free market, government austerity based.
So with such a tide in our culture and politics, we will be blind to progressive ideas, and let the market correct itself, which won’t be anything but its fall out, because it is an inefficient market as well as non ethical. With this there will be smothered efforts of reforming the bigger system, as our natural resources are exploited to the extreme as the last motions of capitalism take effect. In the financial bubble, property ownership and its value was extracted to the few players of importance in the field, as any true value and control was defeated by political tide. In the future it is likely this will go to the extreme, and those responsible, will become further separated in mind from the source of their wealth, the true world, earth, and its people.