I have a pretty positive attitude toward the future. And, I see a lot of new opportunities developing. However, there are some very disturbing trends that seem to be gaining momentum. These trends could have a negative effect on our ability to compete in the world marketplace. And, they will make it harder to live in the lifestyle Americans have become accustomed to.
Disappearing Middle Class
The middle class of America was once the envy of the world. A working person could support an entire family and live in relative comfort from a single income. He or she could own a house, a car and many modern conveniences. They could expect an education, health care and possibly a small pension for retirement.
The middle class is disappearing rapidly, as labor jobs that supported them move overseas. These jobs won’t be returning any time soon, because of globalization and the high cost of manufacturing in the U.S.
We are headed toward a two-class system, similar to what has happened in Argentina, where the rich get richer and the working class get poorer. Real wages have been stagnant in the U.S. for quite some time, despite the steady rise in the cost of living. That’s why there are so many boomerang children right now. It’s getting harder for young workers to afford rent and utilities. Even college grads are struggling.
Solutions: Prosperity lies in goods and services that can’t be outsourced or produced overseas. Industries such as medical and accounting will have steady growth. College degrees in Chemistry, Engineering and hard sciences will remain valuable. Entrepreneurs will be paid better than employees.
Government Deficit Spending
The government’s deficit spending is a looming disaster for America. Recently, the deficit topped 13 Trillion dollars, which is around 85% of our country’s GDP. We added over a trillion dollars to the deficit this year before the end of July. This is a massive amount of debt, which costs hundreds of billions of dollars per year in interest. It is becoming a huge burden on taxpayers.
The reality is the government has to cut back on spending. And, nobody in office wants to face this task, because cutting back will cause a lot of problems. Government offices must be closed, programs and benefits must be cut and government workers must be laid off. This is nearly impossible to do in the middle of a recession. But, it must be done at some point.
Another alternative for the government is inflation. They can shrink the relative size of the deficit by allowing higher inflation. Unfortunately, this will also shrink the savings of retirees and raise the cost of living for people living on a fixed income. To increase inflation, the government only needs to print money to cover their deficits. This is already happening.
Solutions: Keep a portion of investments in real assets, such as precious metals and real estate. Avoid variable mortgages and revolving debt.
The aging of our population is going to cause a number of problems. America’s population has been growing steadily for centuries, but that is coming to an end. Except for the steady growth of new immigrants, America’s population is stagnant. We can predict what will happen by looking at Japan and Eastern Europe, since it has been happening there for quite some time.
First and most obvious, there are going to be fewer productive workers to support our large population. This will affect our social programs, such as Medicare and Social Security, which are in danger of becoming insolvent. It will also affect our stock market, because more people will be draining their 401Ks than contributing. Businesses that were booming for decades will start to see continuous negative growth.
Second, demand for services and commodities will change. For example, there are thousands of shuttered houses in Eastern Europe, because there are fewer new families to purchase them. And, demand for health care is skyrocketing in Japan as their population ages. In parts of our country, schools are closing and small towns are dying, because of negative population growth.
Solutions: Plan and budget for your own retirement, without counting on pensions and government programs. Shift emphasis to create income from alternate sources, in addition to generating income from investments.
The Bottom Line
The bottom line is the corporate ladder has become very slippery. Workers can no longer count on loyalty or respect from their employers or from the government. The surest future lies in creating your own paycheck.
“In the new economy, information, education, and motivation are everything.”
Bill Clinton – 42nd President of the United States
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