Asset bubbles are some of the worst types of recessions because they take the longest to unwind. The next couple of years will go much like this….
- US Dollar will give a short-term rally in the next 6 months only to continue its long term devaluation. It will include an approximate 50% decline (currently at 37%) by the end of the decade in relation to its 2001 levels.
- All commodities (including gas) will continue to rise at around 5% to 7% on average as inflation continues to accelerate. Gas price increases which have been over 20% so far this year will start to flatten their curve, but will continue a slow rise that corresponds to the US dollar value.
- Housing will continue to lose about 5% to 8% per year for at least the next 3 to 5 years. The top end side (> 400K) will eventually lose 50% of their value with this pattern accelerating around 2012. The US consumer will be mostly unaware of this, however, because inflationary rates of approx. 6% will “mask” most people realizing the fall very similar to what happened in the 1970's….
-Unemployment will rise further, but not be greater than 10%. This is due to the fact that there is no lack of liquidity in the system. This comes at the cost of inflationary pressures, however, which will continue to stagnate the US consumer over the medium to longer term.
In short, the outlook of the US economy for the next 10 years will be very slow GDP growth with inflationary pressures eroding US consumer net worth. Industries that will do well will include agriculture, energy, health care, and eventually finance.
A stable recovery. The general concern (shrinking, but still present) is that the U.S. economy could sink into another recession creating a double bottom recovery pattern (as opposed to a V shaped recovery). The U.S. Congress has done a good job at not spooking the markets. If the markets believed that the Fed would be raising the interest rates, the economy could slip into another recession....
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