Beyond 2011 – The Austere Years

More and more thinking people in the U.S. are realizing that the country has major economic and financial issues and no path toward solving them.  It is not hard to see the problems, though many choose to ignore them and listen to the politicians’ self-serving assurances that everything will be just fine.

So, why does a real estate note  like me care about such things?  Because, my success as a mortgage buyer and such will be greatly influenced by economic trends and the decisions of the country’s leaders.   Most likely, your investments and business will also be impacted.

My predictions below are apolitical – as there will not be much major difference regardless of who wins the presidency in November 2012.  Clearly, I have contrarian views relative to many in the media, as I just don’t see much economic news that would cause optimism.  My suggestions to friends and colleagues have been to save money and to invest conservatively.

Nobody knows exactly when the giant wave of financial upheaval will come, but I am quite certain that it will arrive.  Meanwhile, much of the population will never see what is coming, as they remain focused on more “interesting” topics like immigration, gay marriage, and who will be the next winner of American Idol.

Predictions and forecasts are always dangerous to make, especially in real estate and economics where there are lots of moving parts, not to mention the variable of political interference.  That said, here are my educated guesses on what is coming down the pipe.

In the short-term, the U.S. Congress will raise the debt ceiling but make no real progress toward addressing the nation’s deficit.  Okay, that was the easiest prediction, as it
is always smart to bet against politicians doing the right thing.  Of course, the feds, states, and cities will be even more draconian in raising fees on everything that moves … or doesn’t move.  We can expect even more political posturing as the bureaucrats move to protect their favored groups of voters and cause pain to others.

Internationally, Greece will pass their austerity budget and get the bailout loan from Europe in July, thus continuing their model of “extend and pretend”.  Really, if I borrowed $1000 from you, and then said that I could only pay you back if you loaned me $500 more, would you do it?  Of course not.  Yet, that is exactly what the Europeans are doing for Greece, and perhaps soon for the other PIIGS (Portugal, Ireland, Italy, Greece, and Spain).

Longer term (2012-2015), the predictions become more difficult, but here is what I expect:

  1. The U.S. stock market will  be volatile during the remainder of 2011 but generally trend down.  It will partially recover in the months leading up to the election, then drop precipitously afterward.
  2. Property values in both residential and commercial will drop at least 10% in most areas, with some seeing drops of 20-30% over the next 2-3 years.
  3. Within months after the  November 2012 election, consumer confidence will plummet, cynicism toward politicians will reach new highs, and civil unrest will start to unfold as people feel like they are not getting what they are “owed”.
  4. Unemployment and  under-employment will climb, living standards will fall, and average income will decrease for all but favored political constituents – mainly
    Wall Street and certain unions.
  5. Greece will default, followed quickly by at least one of the other PIIGs.  The value of the Euro will fall like a  rock.
  6. The real estate bubbles in  places like China and Canada (especially Vancouver) will burst, hitting both economies right in the teeth.
  7. Rampant inflation will hit developing economies, with civil unrest developing again in places like Egypt that have to import more of their goods and commodities, and have less stable governments.  Inflation of food and commodities will also hit more developed countries, though the
    consequences will be less severe.
  8. The U.S. and western  Europe will come to resemble the zombie economy that has been Japan over the last 20 years, with little growth as the governments try to keep the economies from falling completely apart.

While I make no guarantees about the above and recognize that there are legitimate pro and con arguments to most of my statements, the general trend for developing countries is toward a less stable and more dangerous environment.   There will be lots of surprises along the way, which will make investing and running any sort of business extraordinarily difficult.

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