America's Economic Rebirth
written 24 Mar, 2011
A rebirth of the American spirit and economy is probable. It
would be founded on huge reductions of societal debt and consumption.
It will arise on re-invigorated American entrepreneurship, a
revamped government and healthcare system, new energy sources,
local manufacturing and a growing working age population, amongst
many other changes Americans will embark on.
However, before America can begin its rebirth, it has to deal
with its debts. Total US societal debt may well have reached
a tipping point and many investors are wondering when US government
bonds will be abandoned. In fact, this process might already
be underway. Reuters' Jennifer Ablan reported on March 9 that
Bill Gross's $237 billion Pimco Total Return Fund, the largest
bond fund in the world, had sold all its US government bonds
over the past few months.
The most likely cause for wholesale abandonment of US government
bonds is when there is broad recognition that the US economic
recovery is not self-sustaining - as Bill Gross believes - and
that the fiscal stimulus packages and Fed quantitative easing
(QE) programmes have been ineffective in righting the US economy.
One major result of US bonds being dumped will likely be much
higher US interest rates and restrictive credit market conditions.
Such conditions could give rise to dramatic falls in consumption
as happened in 2008-2009.
In such circumstances, facing a stark new reality, Americans
will be forced to look within themselves for guidance. As they
do, I believe they will regain their 'can do' attitude and surprise
the world with a regenerated spirit and incredible enterprise
and entrepreneurship. Gerald Celente, probably the most accurate
trends forecaster of our time, predicts an 'American Renaissance.'
More than likely the economic and social circumstances of the
next few years will cause a total re-organisation of US governments:
federal, state and local. With greatly restrictive finances,
many of their services will no longer be available. This will
leave room for numerous private entrepreneurs to fill the gaps.
Perhaps the area where this will be most felt will be healthcare.
As I have written in US
Healthcare Delivering a Heart Attack, financial conditions
will force major reductions in Medicare and probably private
insurance plan coverage as well. Individuals will have to pay
directly for many more services.
With patients in the drivers' seat by having to pay directly
for numerous healthcare services, doctors and healthcare service
providers will have to compete in ways they never had imagined
before. Alternative therapies such as Chinese medicine, homeopathy,
ayurveda, meditation, etc, will compete on a more equal footing
with established healthcare practitioners, drug plans, and so
on, to provide health remedies. It will be messy and likely finally
force down the prices of many healthcare services that had been
rising in price far faster than incomes. Finally, healthcare
will become more affordable to Americans. But as in any competitive
marketplace, those that offer the most cost-effective services
and products will gain most.
There is also the opportunity for eventual US energy self-sufficiency,
particularly as many forecasters believe that oil will become
ever more expensive-most especially in devalued dollar terms.
Renewable energy systems - wind, sun, geothermal, etc.
- all have the capacity to vastly increase output. An article
by Karin Rives on February 18, on the website United States Mission
referred to a Bloomberg New Energy Finance report that said US
onshore wind power electrical generating costs are now about
the same as for coal-generated power. The gradual transfer to
electrically driven vehicles is also just beginning.
Furthermore, if environmental safeguards can be found, shale
gas deposits in the US could go a long way to ensuring US energy
self-sufficiency. In "Facts About Shale Gas", Washington
DC based API states that the US has over 100 years of supply
at current gas consumption rates. Moreover, an MIT study reviewed
in the New York Times by Matthew L. Ward on June 25, 2010, foresaw
natural gas usage doubling over the next several decades to 40
per cent of the US energy market.
Thus, US ingenuity in energy production could substantially change
its energy mix. The US could become much more self-reliant while
dramatically decreasing its oil-related imports that today
account for more than 50 to 70 per cent of its trade deficit.
The financial conditions that will befall the world when the
US dollar crumbles will probably lead to trade restrictions and
tariffs in the US and in many countries. US manufacturing, behind
a tariff wall and 'buy America' policies, together with a shortage
of imported goods, will re-invigorate American manufacturing
and technological prowess. Mr Celente predicts an 'elegance trend'
and the need for durability in all things manufactured.
Similarly, Mr Celente forecasts a rebirth of American agriculture.
Americans will demand real, natural food and it will also be
grown abundantly in numerous urban and roof gardens.
Looking out over the next few decades, the US has another advantage
over other large developed countries. It is expected to have
the most favourable demographics as well. By 2050, according
to the UN's 2008 population database projections, the US dependency
ratio is forecast to be 63 dependents per 100 working age individuals,
compared to 96 for Japan and 74 for Europe.
The next few years will be difficult for America. But beyond
that is its revival. Its unsustainable debt burden will be substantially
reduced and US governments - federal, state and local - will
be financially forced to live within their means. This will entail
a huge restructuring of what they do and in the process provide
major opportunities for new entrepreneurial activities.
Healthcare, energy, food, manufacturing and technology, will
be among the areas that will undergo transformations that will
lead America and the world into a new era. A new American spirit
probably arising sometime this decade will give rise to the birth
of a new US economic paradigm.
Founder & Analyst
Alrroya - Investing for the Soul
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