American Wake Up Call!
If you feel that I am somewhat pessimistic about the future of our economy (in the near-to-mid term), you would be correct. I personally think the U.S. (and world) will experience some “painful” adjustments as many of the economic imbalances we see today begin to seek equilibrium sometime before the end of this decade. With that said, my longer-term outlook (20-30 years down the road) begins to start looking much better.
Currently, we Americans are a spoiled bunch, sucking up 80% of the world’s savings to live our lavish, gluttonous, carefree lifestyle. What really concerns me is: Many Americans are completely ignorant to the fact that our lifestyles are being subsidized by the rest of the world, and some even feel (due to our superpower status) that we are “entitled” to live the way we do.
I suspect however, that people will soon start to see things differently, as the tide is beginning to turn…
Years ago, the US was a manufacturing powerhouse, but today, our country manufactures very little, because it’s so much cheaper to outsource/employ a foreign workforce. Examples: U.S. Manufacturing, Steel, Technical services, Administrative call centers, Research & Technology (Xerox, IBM) and numerous other sectors are all being outsourced. Heck, you can’t even find a pair of Levis (the American Trademark) made in the good ole USA anymore.
Why is this happening you may ask? It’s numbers my friend! A U.S. company can pay a worker overseas $1-2 bucks an hour to do the same job requiring $20-30 hour in the US... Either they outsource or they end up like the rest of our troubled U.S. home bound corporations (below).
Many of the home-bound US companies still trying to compete in the Global marketplace are reeling from high labor costs, pension plans, union benefits, health care costs and the like: Delphi, General Motors, Ford and the U. S. airline sector are only the latest in a growing trend of companies feeling the pressures. Expect to see more US corporate and worker problems in the future…
So why has the U.S. economy remained so strong if outsourcing and corporate issues are such a problem? Answer: Housing and consumer spending: Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in the housing-related sectors, such as construction, real estate and mortgage broking. What do you think will happen to our economy when the housing boom dies?
I personally foresee the entire U.S. financial lending & banking industry crashing down and taking our economy with them. Many are leveraged to the hilt and when the housing bubble pops, they will be unable to cover their losses. It’ll probably get very ugly!
So, we have established that (1) the current American standard of living requires an enormous proportion of the worlds savings (2) the US manufactures very little within its borders, (3) outsourcing is prevalent and will continue, (4) home bound US companies are hurting and (5) housing/consumer spending has been the engine that has kept our economy strong.
So, what will it take change all this? How will the U.S. ever be competitive in the world again? Answer: change will be made through a Substantial devaluation of the U.S. Dollar… It is the only way!
Both the US government and consumer are in debt up to their eyeballs, foreign central banks are becoming concerned, oil markets are shaky, the housing market is cooling and it is predicted that US growth will slow in 2006. In this light, I foresee the dollar declining in value as (1) foreign central banks seek to diversify their enormous holdings, (2) helicopter Ben turns up the presses full-blast and (3) the U.S. economy stumbles into a recession. In the end (probably 5-10 years from now), dollar hegemony will be a thing of the past.
Ultimately, this adjustment of the dollar will be painful for the world, and the average American’s standard of living will suffer significantly (much lower). Many Americans will become unemployed early on, but those who live through this era will eventually be put back to work and things will begin to get better… However, the trivial issues we concern ourselves with today (Politics, American Idol, Survivor, keeping up with the Jones’, etc) will no longer be the forefront of our daily lives, as we struggle to keep food on the table and a roof over our heads. The ACLU-type concerns of today will become irrelevant and family values/religion will become the center-stage of the new America.
Another bright side to the issue: This dollar devaluation will allow the United States to eliminate much of its foreign debt and American citizens will demand that our government leaders LEAD (rather than today’s sickening ego power plays, rampant corruption and partisan politics). Welfare will probably become a thing of the past, and people will have to work to earn an honest days pay. Companies and the Government will again start to invest in infrastructure, American expectations will begin to rise, factories will once again start to billow smoke, and ultimately, our country will be competitive in the world once again…
I personally believe it will be a long, very difficult ride ahead, but in the end, it will probably make us a better, stronger nation. We, as a people, have become way too self-centered and soft, trivial issues have become important, important issues are ignored, people are completely ignorant to the world, values are gone, family means little, government is completely out of touch and ineffective, everyone wants something for nothing, etc. This wake-up call will probably do us some good.