We’re entering into a phase of American society that is undoubtedly going to be rather tumultuous and interesting. There are big changes in the works that take years to materialize, but the impact of them will be nothing short of massive. I’m going to attempt to outline some of these major developments.
The area I’m discussing here is mostly financial but the ramifications spread outside the realm of finances. We’re going to start with demographics. In America and other developed countries, we have a bit of a conundrum as aged workers enter the latter years of their life where they have had embedded expectations for some time that they will enjoy a nice retirement full of golf and cruises. The problem, of course, is that almost all that are planning to retire are broke or near broke.
Further weakening the situation is the fact that many of these potential retirees were planning on using their homes as a means to retire. As a housing bubble materialized in the mid 2000’s, these same people doubled down on this idea, took on more debt, and tried to hit a home run in the wealth department by leveraging up on the skyrocketing home values. We all know how that ended, and many of these folks that participated are now worse off years later as a result of a housing bust.
While using your primary residence as a retirement funding vehicle is probably silly in the first place, it’s been completely shattered as a sound strategy due to the housing bust.
The result is millions of people who are struggling to keep their jobs amidst a tough economic climate and who have too much mortgage debt and not enough retirement savings. Where does this go? The answer is a lower standard of living. The baby boomers will be cutting back in every area you can think of: housing, day-to-day spending, vacations, etc.
Of course this same demographic has been responsible for the majority of the excess consumer spending that has fueled the American economy in recent decades, so as the massive group of people shifts from excess consumption to excess saving and cutting back, you can imagine the impact it will have on an economy that is approximately 70% consumption.
Switching gears momentarily, let’s also look at unemployment in this country which is a structural issue, not a cyclical one. The recent recession gave the corporations in this country a way out with regards to excess labor. It provided an opportunity to cut back on costs big time. The result was a spike in unemployment.
Even as revenues have come back for corporations, these same companies are still not hiring back. The companies have instead increased productivity via technology and other means and are able to operate their businesses with fewer bodies. Corporate profits are way up as a result.
Unfortunately, most Americans just assume they will have a job because companies need warm bodies to do various tasks. Rather than work hard to improve skill sets and/or start businesses, most Americans sit on their couches waiting for a job to come to them. This naturally leads to politicians who promise these same folks that they will provide jobs for them. The problem is that a politician can’t provide sustainable employment.
Moreover, jobs are the wrong focus anyway. The country could employ 10 million people to dig holes and fill them back in and we’d drop our unemployment, but it would be zero economic benefit (and in fact a negative economic benefit). Rather than promise jobs, politicians need to work towards an economic environment that leads to innovation and wealth creation. This is what leads to better jobs for masses.
As jobs continue to be unavailable for millions of Americans, there is a real problem coming our way. College graduates are idle because there are no jobs, and baby boomers are being forced to retire early with no retirement funds. The standard of living decline for the masses will likely lead to a reinforced cycle of further declines in the standard of living based on a deflationary economic cycle feedback loop.
So, what does this mean for you? The folks aware of this environment will be better off. There will always be opportunity for those of us willing to work hard and to think outside the box. Waiting around for the next Presidential candidate to “fix the economy” is a dead end, and those who don’t take action into their own hands will be worse off with each passing year.
I hope realizing the realities that I’ve discussed in this article will help you take your own action and you will work hard to make things happen for yourself rather than look to a politician for your assistance.