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July 19, 2011, 12:01 a.m. EDT
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) "” A slow-growth decade is already raging. You feel it everywhere. And it's going to get worse, much worse. A recession is virtually certain for 2012, in an angry, volatile presidential election year. May morph into a 1930's-style depression.
That's the clear message we get from Gary Shilling, one of the world's foremost economic forecasters, long-time Forbes columnist and author of "The Age of Deleveraging," where you'll find tips and warnings: The American economy is facing a huge shortfall in the 2011-2020 decade. We need real GDP growth of at least 3.3% just to keep unemployment stable.
Some stocks have done well this year and still have room to the upside. Paul Vigna talks with Simon Constable about five stocks you wish you had bought earlier this year.
But that's impossible. America will be lucky to get an average 2% real growth, says Shilling. In fact, it's worse: America faces the possibility of 10 long years of no growth. Or, more accurately, a decade of less-than-zero growth. Plus high-stress chronic unemployment. Plus accelerating global unrest, regional conflicts, increasing Pentagon budgets.
In his latest newsletter, one of his scariest ever, Shilling's scenarios for 2012 and the long years ahead feel more like a summer blockbuster that's come alive with a vengeance.
Yes, a 2012 recession is coming, says Shilling, because "much of the excesses and financial leverage built up in past decades, especially in the financial sector globally and among U.S consumers, remain to be worked off."
Reagan and the Bushes expanded government, added debt: "The federal deficits and Fed excess bank reserves" fueled the Fed and Treasury's failed "attempts to bail out the nearly collapsing U.S. private sector" just made matters worse for the economy by focusing on banks not jobs.
As a result of the blunders by our fiscal and monetary leaders, the "private and public deleveraging will take years to complete and keep economic growth subdued." As a result, in coming decades "recessions will be deeper and more frequent." Yes, worse.
Shilling exhibits his usual coolly cautionary yet wisely analytical tone: "The usual trigger" for a recession, "a tightening of monetary policy," raising rates as former Fed Chairman Paul Volcker did a generation ago, "is unlikely in today's weak climate, but others are at hand."
So which trigger will plunge America into a deeper, double-dip recession, and take the global economy down with it? "A further 20% drop in house prices because of the depressing effect of 2 million to 2.5 million excess inventories" is setting up a crisis.
Yes, the housing sector. Remember how Wall Street's excessive greed grew for several years, then triggered the 2008 meltdown? That disaster's never ended. Why? Because another 20% drop in housing "would push underwater mortgages from 23% to 40% of the total, seriously depressing consumer spending, and wreak havoc among mortgages and related securities."
It gets worse. Look around. Warfare? We are in a virtual mine field of triggers merging into a perfect storm, triggers that individually and together can and will plunge America into a double-dip recession. More accurately, a global depression: Another big "spike in energy prices due to Middle East trouble could also drive a weak U.S. economy into recession" and "force a Washington response in the 2012 election year."
No QE3 says Fed Chairman Ben Bernanke? But more "fiscal stimulus is likely since even Tea Party folks like to get reelected." So stay tuned to Fox News and MSNBC for updates in this accelerating "War on the New Planet of the Apes."
Shilling summarizes the 9 reasons investors had better prepare for "Slow Global Growth in Future Years." Not just for a temporary, double-dip recession in 2012, but a deeper depression-era slow growth likely till the election of 2020. So start by committing Shilling's "9 Causes of Slow Global Growth" to memory, plus the 10th one we added:
More and more consumers are shifting from a 25-year borrowing-and-spending binge to a saving spree. This trend will spread across the globe. Why? Because American consumers will import less from developed and emerging nations that are dependent on exports for economic growth.
Financial deleveraging is already reversing economic trends that financed much of the world's new growth in recent years.
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The... Expand
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology. Collapse
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