July - August 2014
Annual subscriptions to our are $250.Newsletter
Put Our Experience To Work For You
803 Sheridan Road, G...
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July - August 2014
Put Our Experience To Work For You
803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-10...
[Return to index]
July - August 2014
Put Our Experience To Work For You
803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-10...
[Return to index]
July - August 2014
Put Our Experience To Work For You
803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-10...
[Return to index]
July - August 2014
Put Our Experience To Work For You
803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-10...
[Return to index]
July - August 2014
Put Our Experience To Work For You
803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-10...
[Return to index]
July - August 2014
Put Our Experience To Work For You
803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-10...
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Should We Worry About the Projected Depression In 2030?

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The Newsletter discusses the prediction that the U.S. will have a recession in 2018 and a Great Depression in 2030. The Wise Old Owl looks at how the U.S. economy should be viewed over the next 6 to 12 months.

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Should We Worry About the Projected Depression In 2030?

  1. 1. July - August 2014 Annual subscriptions to our are $250.Newsletter Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. In its July economic report, our strategic partner, the Institute for Trend Re- search (“ITR”) quoted the great philosopher Yogi Berra’s famous statement, “The future ain't what it used to be.” From time to time, as it did in its July report, ITR tries to look out well into the future to see when the next major cycle changes will occur and what those changes will mean for the U.S. economy. Normally, in order for you to plan how best to manage in the near term, our Newsletter is concerned with the next six to twelve months. ITR views the next six to twelve months as the base line for looking far out to the next major cycle change. Our current cycle is projected to reach its low point in mid to late 2015. The current cycle, as ITR projects it, appears to be one where the gen- eral economy continues to grow ever more slowly through the end of 2014 into mid-2015. Assuming that there are no major economic events be- tween now and mid-2015, an optimistic view given the cur- Press control and click on topic to go to Feature 1. Should We Worry About the Projected Depression In 2030? 2. Recent Cartoon 3. The Wise Old Owl
  2. 2. [Return to index] July - August 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 2 rent world situation, the economy should have a soft landing in 2015, according to ITR, and begin a much stronger rising trend going forward. Thus, the short run has problems for various segments of the economy, but no general recession in sight. Just as we were about to get excited, ITR reminds us that there are all sorts of structural problems in the U.S. economy. When we don’t recognize such prob- lems and adopt policies to correct them, bad things can happen. So, sure enough, ITR is forecasting a recession, followed eventually by a depression, in our future. So when does ITR ex- pect our economic cycle to start its shift from a growing economy to a declining economy? According to their crystal ball, the im- pact of our cumulating economic disconnects will reach the tip- ping point in 2018. Based on their research as applied to historic models, ITR believes the “unwinding process is likely to continue with the macroeconomic indicators such as U.S. Industrial Production and GDP experiencing decline beginning in late 2018 or early 2019.” ITR “suspect[s]” that the cause of the 2018 recession will be “rising interest rates” derailing the global economy which has become “addicted to an extremely low cost of money with essentially no expectation of future inflation.” Based upon everything they know, ITR thinks the next “Great Depression” will be 2030! They suggest that if we want ourselves and our families to survive we need “to prepare ourselves, our businesses, and our families for that Depres- sion.” ITR has not yet explained how we do that. In ITR’s analysis, one of the great driving forces determining how a country will come through the next great depression is demographics. Some will emerge with excellent prospects just as the U.S. did after the last Great Depression based
  3. 3. [Return to index] July - August 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 3 on the altered economic conditions of World War II. Others will emerge quite broken. ITR suggests that: “Our analysis strongly suggests that we should be glad that we are facing this future from within the United States rather than other parts of the world.” Very focused on the percentage of the population below 40 years of age, ITR suggests that countries with “a volume of people in the younger age categories sufficient to fund the needs of the elderly” will fare better. In particular, ITR suggests that “aging populations in Japan, Europe, and Russia” make them particularly vulnerable to the coming depression. ITR sees Eu- rope in trouble because its economy is driven by Germany and ITR thinks the German demographic balance is tilted toward the elderly, making it hard to have enough working people to support the aged in Germany. Focusing on China, Western Europe, Russia, Japan, and Canada, ITR explains that these “five ar- eas will have more than 50% of their respective populations older than 40 years of age.” For Japan and Germany the forecast is that from 60.8 to 65% of their population will be over 40. Europe is in trouble even if Germany avoids the demographic problem. ITR’s analysis is that countries with high percentages over 40 will need to adopt extremely high tax rates for the small remaining working popu- lations thus making things worse and in the end fail- ing to have a large enough working base to sustain their needs at any tax rate. ITR does not currently see the U.S. as in this category.
  4. 4. [Return to index] July - August 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 4 But is ITR right about the U.S.? If there is another worldwide depression by 2030, it will certainly create very real economic stress in all of the countries on the globe. But the factors governing how each country will come through such a cata- strophic event is far more complex than just demographics. The last great depression was precipitated by the 1929 U.S. stock market crash. While the Hoover administration initiated many steps that began to repair our financial structure, the Fed tight- ened, rather than loosened the monetary supply, causing sub- stantial problems for a recovery. The policies adopted by the next administration look much like today and the recov- ery sank under this further economic disruption in spite of what ITR would call good demographics. What brought the U.S. out of the depression was World War II with 11 mil- lion young Americans out of the work force and in the armed services and industry rising to the supply challenge coupled with an immediate post-war world where virtually every country needed our goods and services. This approach is not the preferred option for 2030. Is ITR right that the U.S. is better positioned than Germany? Age Group United States Germany 65 and older 19.6 48.6% 27.9 60.8% 40 to 64 29.0 32.9 20 to 39 25.4 51.3% 21.5 39.1% < 20 25.9 17.6 Total population in mil- lions 365.7 78.0 Source: Senses Bureau Let us look at some of the complex drivers that will affect a recovery. Three critical drivers, among others, will impact how demographics would affect a re- covery.
  5. 5. [Return to index] July - August 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 5 One of these is what will be the needs of the over 64 population and the state of the infrastructure to provide for those needs. As we discussed in our last News- letter, Germany is in the process of reforming its social welfare programs with an eye to the cost of maintaining them and meeting future needs. They have a very effective and efficient healthcare system with resources that are sized to meeting their growing needs. At present, both our insurance system and our resource allo- cation appear to be disjointed and not needs driven. In short the healthcare free market has been so disrupted by government interference that it is not clear that we will have an efficient and effective allocation of healthcare resources if a major economic disruption hits. Suppose, for example, the U.S. needs hundreds of rural doctors and hospitals to care for an aging population and a depression prevents us from properly address- ing that need. If Germany has reformed its programs to meet that need, they will be much better positioned. Another key driver is taxes and debt. As our Newsletter discussed last month, Germany has focused upon adjusting its tax system and debt, including future debt to GDP ratios, to promote economic growth and employment. Currently the U.S. deficit for 2014 is $575 billion and growing, national debt per citizen is $55,000 and growing, national debt per tax payer is $151,000 and growing, and the U.S. national debt is almost $18 trillion and growing. Our debt to GDP ratio exceeds 100%, some 30% greater than Germany’s. If there is need to incur substantial debt to work our way out of a depression, who do you think is better positioned, the U.S. or Germany? A critical assumption of ITR’s demographic analysis is that young people can work to support the government with taxes and the older pop- ulation with the goods and services of a recovering economy. As our last
  6. 6. [Return to index] July - August 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 6 Newsletter noted, today in Germany unemployment is low and everywhere you look you see young families with children and faith in the future. Look around you; do you see that in the U.S.? Last month in June, the U.S. saw full time employment go down by 523,000. The unemployment rate went down and employ- ment over all went up because of an increase in part time jobs by 800,000. The number of people in the labor force is at a 36 year low. Teenage unem- ployment hit 21%. The number of high paying jobs is shrinking and of low paying jobs is increasing. College graduates are having trouble finding jobs and are not going out on their own and forming families. So while we may have more than 50% of our population below the age of 40, if they cannot find work, it may not help. In fact, it appears that well less than 40% of our population below 40 may be able to find good paying jobs. If the 40% of their population be- low 40 can find good paying jobs, Germany may well be better positioned than the U.S. So the initial question remains, “Should we worry about the projected de- pression in 2030?” The question is simple; the answer is not. From the standpoint of increasing your company’s profits over the next 6 to 12 months, 2030 is a long way off. But if we don’t start working soon to change our government’s perspective on building a growing economy, 2030 may be here be- fore we know it.
  7. 7. [Return to index] July - August 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 7 If ITR is right, this economic cycle and the one beginning in late 2015 will continue to be various versions of an economy with slight growth and without meaningful directions; but not breakout growth. Weak, modest growth will present business challenges, but not prevent careful decision making from creating increasing revenues and profits. Forecasts are nice, but we do have to remember that between now and 2018, no one has predicted a strong enough economic recovery to withstand unexpected economic shocks. Thus, a prediction of an econo- my with modest growth through 2018 has the caveat that an unexpected economic shock could totally change the actual outcome for the worst. The con- verse is also true; a real change in government policy might also change the out- come substantially for the better. To make sure your company planning prepares it for whatever comes, call us; we can help. Recent Cartoon The Wise Old Owl

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