British investor and economist Jeremy Grantham is regarded as a highly knowledgeable investor in various stock, bond, and commodity markets, and is particularly noted for his prediction of various bubbles. He has recently released his forecast for America’s economic future. According to Grantham’s report, the once normal annual GDP rate of growth of 3% “is gone forever.”
The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever. Yet most business people (and the Fed) assume that economic growth will recover to its old rates.
He goes on to state that “GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year and adjusted growth about 0.9%.”
In addition to that Grantham also points out that population growth is down and will only grow at a crawling rate of one half of one percent and with more women moving into the work force and that cultures disregard for children it could slow further.
In addition Grantham points out that resource costs have been rising and will continue to escalate higher. He writes:
Resource costs have been rising, conservatively, at 7% a year since 2000. If this is maintained in a world growing at under 4% and a developed world at under 1.5% it is easy to see how the squeeze will intensify.
The price rise might even accelerate as cheap resources diminish. If resources increase their costs at 9% a year, the U.S. will reach a point where all of the growth generated by the economy is used up in simply obtaining enough resources to run the system. It would take just 11 years before the economic system would be in reverse! If, on the other hand, our resource productivity increases, or demand slows, cost increases may
decelerate to 5% a year, giving us 31 years to get our act together. Of course, with extraordinary, innovative breakthroughs we might do even better, but we certainly shouldn’t count on that. (Bear in mind that we don’t even know precisely why the prices started to rise so sharply in 2000.) Excessive optimism and doing little could be extremely dangerous.
So what is Grantham’s prediction long term? He writes, “The bottom line for U.S. real growth, according to our forecast, is 0.9% a year through 2030, decreasing to 0.4% from 2030 to 2050. This is all done presuming no unexpected disasters, but also no heroics, just normal ‘muddling through.'”
He concludes, “Critically, the tech boom and bust and the following housing boom and housing and financial busts helped camouflage the recent unpleasant economic development lying below the surface: the steady and important drop in long-term US growth.”
All of this and yet Congress vacates the people’s very serious business at hand of whether or not we are going to add more debt or tighten our belts and rein in spending, deal with real fiscal cuts and actually balance a budget. It’s also looking more and more like the guys that claim to be on our team are ready to cave in and just throw the country into the abyss. All of this combined with the increased size of the federal government, taxes and cost of living with and incompetent administration is enough to make one want to start looking at real estate in New Zealand!
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