Sunday, September 18, 2011

The New Economic Normal

I haven't seen much written on the topic, but I think the U.S. economy experienced the bursting of a lifestyle and wage bubble during the great recession.  Americans can no longer expect to have the same lifestyle and wages as before the recession.   Until people realize the old wage and old lifestyle are not coming back quickly, we will continue to be in an economic rut. Unfortunately, some people are holding out from the workforce until they can achieve the previous wage levels. 
I know some people blame the issue on exporting jobs overseas.  That may be a contributing factor.    I think the bigger issue was that the increasing demand for higher lifestyles over the last two decades (housing and goods) kept wages high.  When the mortgage crisis eliminated demand for housing and goods,  the lifestyle bubble popped.    That was followed by a pop of the wage bubble since demand was down.   Now people who have lost jobs are unlikely to find new jobs at wages close to what they used to make.

It appears to me the next bubble to pop will be the retirement bubble.  Many public pensions are underfunded and require increases in tax revenue to make payments.  Many private retirement accounts are down due to the stock market decline.   Social Securtiy will be unable to cover full payments within 20 years. 

Is the U.S. doomed?  I don't think so yet.   We just have to get over the denial, recognize the reality and focus on what is needed to get back on track.  The U.S. and its economy can be very resilient, if they are allowed to do so. 
For more on  New Beginnings/New Realities, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

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