By Mike Adams
In less than three decades we have been slammed by four economic hurricanes. First was the dot-com bust. Next came the Great Recession. Then the Pandemic, which was followed by inflation. Inflation, by the way, will probably continue for years yet to come. Each of the first three ended with the market and our client accounts reaching new highs. We have yet to see the end of inflation and we would guess our client accounts will reach new highs.
The economic blasts mentioned above were for the most part “Black Swans” – unusual events that were unexpected and unplanned.
What lies in the future may be the “Black Elephants” – unusual events for which we already see building and would be avoidable but for governments avoiding taking the issues directly.
The first black elephant is government debt. It is not just an American problem. By the end of this year six of the G-7 nations will have debt that exceeds 100% of their GDP: Japan (255%), Italy (144%), United States (123%), France (110%), Canada (106%), and the United Kingdom (104%). Even more worrisome are 22 nations that are on the verge of defaulting on their government debt. There are three ways out of a worldwide debt excess. The first is to grow GDP more rapidly. That is easy to say, but not likely. The second is for nations to reduce spending and raise taxes to begin paying down the debt. That is very possible but world governments must have the will to do so. How likely is that?
The third way to cure a debt excess is to inflate out of it. It is to world governments’ debt advantage to see rising inflation. Inflation increases government revenues by making dollars and other currencies cheaper.
Inflation is the second black elephant. In the United States we are seeing a shift from what is called demand pull inflation (too many dollars chasing too few goods) to cost push inflation (wage and commodity pushing up prices). There are an estimated 4 million more jobs than there are workers to fill those jobs. Help wanted signs are posted everywhere. In a sign of increase wage demands in the United States in 2023, there were 17 million workdays lost to strikes. That is more than in the previous 10 years combined. If the trend continues, the Fed may lower rates a time or two but could eventually begin raising interest rates again.
A third black elephant is the replacement rate, which is 2.1 in developed countries. What that means is for the population to remain stable, every woman must average 2.1 children. In China and Japan, the rates are 1.2 and 1.3 children for every woman. Populations in those two countries are already contracting. The rate is 1.67 for developed countries, and even in Africa and Asia, the rates are tumbling down. By 2050, there will be fewer babies born than people dying. When Social Security was passed, there were 40 workers in the United States for every retiree. Today, the number is three to one and declining. This slows economic growth and will further strain government budgets worldwide.
Ignoring these and similar trends could lead to very difficult times approaching or living through retirement. As the Boy Scout motto says: “Be Prepared”. It will not be easy and it will likely involve very volatile times. We’ve said before that things that have never happened before happen all the time. For those who are prepared it will probably be bumpy and not smooth sailing but should not be a disaster either. The key is to be prepared. Will you be?
Article Written By:
Mike Adams, President & Principal
Adams Financial Concepts LTD
1001 Fourth Ave, Suite 4330, Seattle WA 98011
Comments