The U.S. is heading towards a major depression

[Sava]

As much as I love ripping Bush and the Republican puds in this country, I don't think a major depression is on the horizon. The American people will wise up and vote Bush out in 2004 based on the economy just like his dad. We'll have a Democrat president who will balance the budget, the economy will recover and prosper like under Clinton; another Republican will get voted in during 2012, and the cycle will continue.

[CerberusIV]

My point is that a lot of the countries that are industrializing now, or over the next couple of decades are well on the way and past needing much from USA/Europe/Japan. That means facing up to industrial restructuring in the West, already well advanced in many countries, developing high tech and luxury products and ensuring investment happens here, not elsewhere. That last point is the critical one and a recession isn't going to help.

[Seneca]

What if everyone suddenly realises that apart from being shiny and quite scarce, gold isn't really all that more useful than any other metal?

[Spiffor]

Originally posted by Tripledoc
But a major depression is better if it is short, while an average 'Japan style' depression might go on for several decades.

An average depression is not necessarily as long as the deep Japanese depression (which is caused by the need of the Japanese economy to completely change its structures, now that the "catching back" phase is finished). It's a usual economical phenomenon, which is due to the lack of confidence in the economy, which in turn creates a lack of confidence in the economy, etc. and the phenomenon ends at some point, usually after 3-7 years.

I fail to see how deficit spending can save the day since quite frankly there is nothing really to spend money on, unless there is some revolution in renewable energy.

There is no limit to the amount of money a hawkish administration can spend in the military. The huge raise of military funding was partly intended to instill money within the American economy.

[Velociryx]

Conflict is good for the munitions business, but just about nothing else, so yes...if there's war, there'll prolly be recession.

Once the war ends, if we're smart, we'll seek out and create opportunities to keep the global economy expanding.

America has a lot of business expertise. One need only to look at the sheer size of the US economy to realize that if you're a little fish, trying to get bigger, help from the guys who are already there is probably a good thing. Even better, accepting such help doesn't even require that you LIKE the other guy much (which is fortunate for us, since pretty much everybody in the world wants to see the US reduced to cinders--and a good bit of that is our own fault, but that's another topic).

So....even if a developing nation has a mind to go it alone, if we're smart (and in business, we surely are), we'll seek them out. We won't wait for them to come to us, we'll go to them....wherever they are, and we'll do a deal. We'll make the business happen.
Recession will be a bump in the road, but I do not predict anything close to the global depression the doomsayers always seem to trot out when there's the least little trouble on the horizon.

Seems like they watched the movie "rollover" and took it as gospel....

-=Vel=-

[Imran Siddiqui]

It may go into recession, but all I see is just modest growth. That isn't bad seeing the state the rest of the 1st world is in. As long as it doesn't go too south, it'll be alright.

[Ogie Oglethorpe]

Firstly I don't know the answer, but there are some drivers that may lend themsleves to a contraction of US economy.

The current set of distractions aside.

From a strictly US market, one can expect as the current projected demographic, the US will soon see a large glut of its population moving from productive and large time consumer ages of mid40's+ (baby boomers) into retirement withio the next 10+ years.

This means a large segment of our population will be marginal consumers, no extravagant expenditures for latest and greatest electronics, toys, pleasure items etc. There may be a slight impact in second houses in the southern regions for retirment homes etc. But by and large the big time consumers of 20-40 age groups wherein new cars, first time home buyers, etc. is going to be a shrinking market segment.

While I agree the world is the total market, one also need consider strength of US dollar, foreign policy (and the negatives we've garnered there of late), strength of local competition etc.

In short I don't know but I would agree that there is more than enough reason to be concerned.

OTOH I wouldn't invest in gold regardless but thats just my opinion.

[Imran Siddiqui]

Yeah, Ogie, but the baby boomers are all materialists .

[Ogie Oglethorpe]

I can see it now. Nursing homes all filled with the latest big screen TV's. 2 per room.

[Solly]

JohnT,

Nations with a high proportion of young or old dependents tend to devote a relatively high proportion of resources to these groups, often limiting economic growth. By contrast, nations in which a relatively large share of the population has reached the prime ages for working and saving may enjoy a boost to income growth stemming from the higher share of the population that is working (see Western nations 1960 - 2005), from the accelerated accumulation of capital, and from reduced spending on dependents. This phenomenon is known as the "demographic dividend." The combined effect of this "dividend" and effective policies in other areas can stimulate economic growth.

[Tripledoc]

Originally posted by Spiffor
There is no limit to the amount of money a hawkish administration can spend in the military. The huge raise of military funding was partly intended to instill money within the American economy.

Surely there must be some upper limit. Military might must be paid for - the largest post being wages. Deficit financing does not add anything of value to the economy if it is just wages. It must be used to invest in productive or wealth generating enterprises.
A large well paid army might boost consumption. However armies are not paid to consume are they?
The army is not a welfare institution.

If the scheme is to instill money solely within the US economy as you stated then surely investment in foreign countries will suffer as the dollar depreciates and nothing will be done to correct the fundamental imbalance in the world economy - trade deficit wise.

I simply can't understand all this talk of how the level of consumption is an indicator of economic growth when the financial base for futher increases in consumption is not there and seemingly the demand is not there either.

[monolith94]

My pofessor of geopolitics invested in silver and made approximately $200,000 and lost the vast majority of it in one day.

[Velociryx]

You're right...armies are not paid to consume, but it is a natural byproduct of paying them.

Soldier gets money....soldier and his wife go buy stuff....food, new refridgerator, TV for the kids....stuff.

Soldier gets called to the gulf....but the wife and kids are still home....money still comes in, they still go buy stuff.

Don't totally ignore what the doomsayers are pushing, but also, don't put too much faith in it.

It was the doomsayers who kept saying that the American stock exchange would never rise above 2000....uh huh.....

-=Vel=-

[DuncanK]

"In the long run we're all dead."-John Maynard Keynes

I voted bananas because you didn't specify when the depression will occur.

There will be one last Great Big Long Depression. The leaders of the world will do everything they can to get people to spend and invest like they used too, including war. They will go bankrupt in the process and riots will break out. The people will demand direct state planning in the economy to put the people back to work and to get neccessities to those who need them.

I'm a supply side theorist when it comes to the boom bust cycle. In the expansion stage some businesses start a new industry. Since its new they have little competition and they make big profit. Then other businesses move into the industry until they glut the market and profits fall. Then businesses lay off workers and that causes economic colapse. If the economy recovers its because a new industry emerges. Well, you can stimulate the economy, but eventually a new industry must emerge.

Is is time for the last depression? Will a new market emerge and prolong it? No one will be able to tell you that. Maybe Vel is right and China will keep growing keeping our economy going temporarily. Or maybe China's economy will collapse too and they will fall into disaray.

[DuncanK]

The war will probably do little to the economy either way, because it should be a cheap war.