What will austerity look like in America?
State and local governments are broke. Pension plans are unfunded. Unemployment is as high as ever. Sovereign debt is a problem. The total debt in the world economy is too high. Entire western world has borrowed excessive amounts in the last few decades. This is not just the money owed by governments, but it is the money people and companies borrowed from the banks. Debt has reached an all time high compared to the GDP of the countries involved. Perfect storm is coming. Austerity and spending cuts will be deflationary. Why? Are we still in Kondratieff Winter? Or did it end with the 2008 crash? What will the Kondratieff Wave bring next?
Since the start of the European sovereign debt debacle, the word “austerity” has been bandied about a lot.
It wasn’t an everyday word, and may send some people to the dictionary. Merriam-Webster defines “austerity” this way: enforced or extreme economy.
But even knowing this definition might leave one wondering how “austerity measures” relate to Europe’s debt crisis. The Associated Press (5/13) provided this overview:
Austerity has been the main prescription across Europe for dealing with the continent’s nearly 3-year-old debt crisis, brought on by too much government spending. But what does it mean for the average European? Imagine paying sales tax of 23 percent or more. Or having your wages cut by 15 percent. Austerity comes in many forms: higher taxes, fewer state benefits, more job cuts, working longer until retirement, you name it.
How about America? Will austerity measures be imposed on the world’s largest economy? Well, a Marketwatch columnist says “America’s new Age of Austerity is already here…Yes, America is already in a depression.” (5/29)
We agree. In fact, Robert Prechter said as much in the September 2011 Elliott Wave Theorist:
Bulls say the economy is in recovery, albeit a weak one. Bears are calling for a “double dip” recession, like the back-to-back recessions of 1980 and 1982. But, as is often the case, we disagree with both camps: The economic contraction of 2007-2009 was not a recession; the respite since then is not the start of a new economic expansion; and the economy is not going to have another “dip” into recession. The economy has been sliding into depression.
The signs of an American austerity are becoming widely visible. And nowhere is this belt-tightening more evident than in state and local governments. Recent years have seen a multitude of stories that describe reduced services. And in the overall economy, we’re seeing a de-leveraging of debt. Unemployment remains relatively high. Here’s a CNBC headline from today (5/30):
Sign of the Times: 20,000 Apply for 877 Auto Job Openings
This story about a new automobile plant in Montgomery, Alabama is one of many like it that feature jobless or under-employed individuals standing in line.
Above I showed the September 2011 quote from Robert Prechter. Yet he actually foretold much of what is financially happening today in his 2002 book Conquer the Crash.
That’s right. Ten years ago, he described what this age of austerity would look like. Much of what he described looks just like what is going on today. But how about the rest of what’s described in Conquer the Crash?
Yes, there’s more. You see, Prechter pointed out much more than what unfolded in the 2007-2009 financial crisis. Do yourself the biggest of favors and learn what he has to say. Be one of the few who are prepared vs. the majority who will be caught off-guard.
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- Can the Fed Stop Deflation?
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