Herewith is a modest, and altogether dangerous, attempt to predict key trends for 2013.
1. Economic Hardship
Slow GDP growth. The consensus forecast for 2013 GDP growth hovers around 2%. The growth in the deficit is growing faster, resulting in a higher debt burden on the economy. Higher debt burdens impede growth, increase unemployment, and produce a lower standard of living.
Higher public debt. Increasing public debt obligations represented by unfunded liabilities from entitlements to bloated public employee pensions assures that more taxpayer bailouts (or broken promises) is one step closer to reality. The USPS, state of California, and city of Detroit are but a few examples of increasing 2013 distressed economic problems.
Higher unemployment. Unemployment will begin ticking upward as businesses close or cut back due to increased regulations, taxes, and government involvement.
Lower labor participation rate. The labor participation rate will drop to below 60% as millions more leave the workforce due to coercive departure or “early” retirement.
Increased government dependence. Food stamp recipients will exceed 50 million for the first time in US history. Obamaworld is characterized by increased dependence on the state for the declining middle class and an increased tax burden on the “rich”, a term that will be defined downward in years to come.
Trickle-down taxation. The reality is that “trickle-down” taxation means that all those who vote to tax the rich will see increased taxation on themselves, both from the government sector as well as reduced growth that attends increased government participation in the economy. In 1911, the total government percentage of US GDP was 8%. Fifty years later, it was 25%. And in 2013, it will exceed 40%. The Lorenz curve, a measure of income distribution, will show the gap widening between rich and poor in 2013. The increase in the payroll tax will also represent a drag on consumer expenditures.
Municipal and state financial challenges particularly in “blue” states. The states that are reforming their labor laws, rejecting the development of insurance exchanges required of Obamacare, and are focused on controlling spending will emerge as healthier economies. The “blue” states will continue to focus on increased taxation and devotion to government largess, resulting in slow growth and debt-burdened economies. In the end, free market economies always outperform government-controlled economies.
The arrogance of government will produce further cracks in the nation’s foundation. We will see additional cracks imposed by economic judgment. This judgment will take the form of an additional credit downgrade, bond wariness attending debt monetization (pressuring interest rates), and may stimulate a renewed interest within the Obama administration to use some parts of private 401(k) and IRA accounts to be used for supporting bond market purchases. Herb Stein’s law states that “If something cannot go on forever, it will stop.”
More storms, earthquakes, and drought conditions leading to increased distressed responses. There is not enough money available to compensate those who live in high-risk areas, whether due to fires, floods, hurricanes, or earthquakes. Citizens of Obamaworld will discover what moral hazard means from “privatizing the gain and socializing the loss.” Moral hazards yield unintended consequences that invoke insurance risk, often taking the form of costs higher than anticipated and a lower ability to honor those requests.
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