Five Major Reasons the Economy is Screwed
5) The parking lot at Applebee’s is thinning while the drive-thru line at McDonald’s is lengthening
Many Americans are continuing to Super Size their order while downsizing the bill. The Dollar Menu is how people are “Eatin’ Good in the Neighborhood.” This is evidenced by increasing sales at McDonald’s and decreasing sales at Applebees. Cutting back on restaurant bills is the opposite of how people behaved during the most recent bubble when disposable income was flowing in from Flip That House winnings. Forget fancy polls: this consumer sentiment gauge speaks louder than words.
4) Uncle Sam is holding up the housing market
At the moment, the only thing “stabilizing” house prices are historically low mortgage rates and a monster home buyer tax credit. Without these major subsidies, the housing market may have fallen into the great abyss. So don’t get too complacent. If Atlas shrugs while unemployment is high, mortgage prices will rise and the housing market will get slammed. The Home Buyer Tax Credit is set to expire in April. Let’s see if politicians can stomach another round of foreclosures.
3) A bunch of countries are on the verge of going bust
Yes, countries (not corporations). Remember what happened when Lehman Brothers imploded? Now imagine Portugal, Italy, Ireland, Greece, or Spain (affectionately known as the PIIGS) going belly up. Throw in some Eastern European countries and a black swan (the UK or US), and fear could spread faster than swine flu. Don’t think it can happen? The math is simple. Countries have borrowed and spent much more than they make. That is like breaking a fundamental law of the universe. And when that law is broken, bankruptcy or bailouts loom.
2) Many jobs have been lost forever
The US was once a job creating machine. In the 1940s, 10 million jobs were created. In the 1990s, 19 million jobs were created. In the economically crappy 1970s, almost 16 million jobs were created. However, in the 2000s, the private sector deleted 208,000 jobs — many of them are now permanently overseas. We cheered for free market trade agreements like NAFTA, but did we truly understand the consequences? Apparently not. Now the only way to grapple back many manufacturing and tech jobs is to lower wages and compete in the free market. That could get more bewildering than an episode of Lost.
1) 78 million baby-boomers are eligible for Social Security and Medicare
This is the economic atomic bomb. There are not enough greeter jobs at WalMart to offset the back-breaking burden of 78 million people falling into the social safety net. Politicians have used the Social Security and Medicare funds as ATMs for tons of unrelated spending projects over the years. Unfortunately, no one refilled the cookie jar. As tax collectors reach into our purses to make good on promises made to the Boomers, there will be less money to drive the economy back to prosperity. This would hurt a booming economy. What will it do to a fragile one?
What other obstacles stand in the way of prosperity? What are some reasons we will pull out of this mess? Let us know below …