In a recent interview with Financial Sense Newshour, Dr. Alan Beaulieu, President of ITR Economics and author of the must-read book Prosperity in an Age of Decline,
explained to listeners how the world's largest economy, the US, is
likely to enter a Great Depression by 2030 given three very important
trends: growing interest payments on debt, healthcare costs, and a
return to higher levels of inflation.
As President of the "oldest,
privately-held, continuously operating economic research and consulting
firm in the US," Beaulieu noted the focus of their analysis is not to
scare investors, but to face the objective reality of these forces and
help business leaders respond appropriately to changing economic
conditions.
Addressing the issue of indebtedness, Beaulieu noted
how all western industrialized nations struggle with high debt to GDP
ratios and this will only increase in the years ahead. In the US,
according to projections by the non-partisan Congressional Budget
Office, interest payments alone will consume substantial amounts of the
federal budget in the decades ahead, he noted.
But the real
trigger for a future crisis will likely start with Japan: “their numbers
are worse than ours’ in terms of debt and demographics. They don’t have
enough children and they don’t like immigration.” Eventually Beaulieu
sees the Japanese government having to sell US Treasuries in such large
quantities that it puts downward pressure on the US dollar and leads to
higher interest rates. Japan “begins a trend that starts to snowball,”
he said.
In this scenario, the US will not be well equipped to
handle higher interest rates or a declining dollar in large part because
of health care costs. Beaulieu predicts that the US—with the most
expensive health care system in the world—will eventually suffer the
consequences of out of control spending: “we can’t afford this system
now… when you consider that 10,000 people a day are retiring you balloon
the cost of the system as we move into the 2030 timeframe [and] it
becomes unsustainable.” Beaulieu cited the high cost of end of life care
as a particularly acute problem for the United States.
Inflation is also a major concern of Beaulieu in Prosperity in an Age of Decline.
Looking back through history, he noted that deflationary trends last at
most thirty years and believes in the coming decades we will be dealing
with the negative effects of high inflation, even as few expect it now.
“We have the trigger in place for everything we need for higher
inflation,” Beaulieu asserts, including rising wages both in the US and
around the world.
Beaulieu noted how in its initial stages
everyone from bankers to wage earners welcome some inflation since it
hides or "forgives a lot of sins," he said. But as happens all too
often, policy makers are slow to respond to what eventually becomes a
dramatic loss of purchasing power and central banks aggressively
tighten. Beaulieu believes that by 2030 or so most major governments
will be so pressured by demographic headwinds and debt that any
additional borrowing or stimulus won’t work, sending the US and global
economy into a severe contraction.
Though Beaulieu sees major
trouble past the next decade, when asked about his outlook over the next
year or two, he said they don't expect to see a US recession until 2019
and that we are likely to see a major transition from
deflation/disinflation to rising inflation starting next year, which
will be reflected in commodity prices and other asset classes that he
outlined during the interview.
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