America’s Economic Rebirth

By Ron Robins, Founder & Analyst, Investing for the Soul

Blog Enlightened Economics; Twitter

First published March 24, 2011, in his weekly economics and finance column at
alrroya.com

A rebirth of the American spirit and economy is probable. It would be founded on

huge reductions of societal debt and consumption. It will arise on re-invigorated
American entrepreneurship, a revamped government and healthcare system, new
energy sources, local manufacturing and a growing working age population, amongst
many other changes Americans will embark on.

However, before America can begin its rebirth, it has to deal with its debts. Total US
societal debt may well have reached a tipping point and many investors are
wondering when US government bonds will be abandoned. In fact, this process
might already be underway. Reuters’ Jennifer Ablan reported on March 9 that Bill
Gross’s $237 billion Pimco Total Return Fund, the largest bond fund in the world, had
sold all its US government bonds over the past few months.

The most likely cause for wholesale abandonment of US government bonds is when
there is broad recognition that the US economic recovery is not self-sustaining—as
Bill Gross believes—and that the fiscal stimulus packages and Fed quantitative easing
(QE) programmes have been ineffective in righting the US economy. One major
result of US bonds being dumped will likely be much higher US interest rates and
restrictive credit market conditions. Such conditions could give rise to dramatic falls
in consumption as happened in 2008-2009.

In such circumstances, facing a stark new reality, Americans will be forced to look
within themselves for guidance. As they do, I believe they will regain their ‘can do’
attitude and surprise the world with a regenerated spirit and incredible enterprise
and entrepreneurship. Gerald Celente, probably the most accurate trends forecaster
of our time, predicts an ‘American Renaissance.’

More than likely the economic and social circumstances of the next few years will
cause a total re-organisation of US governments: federal, state and local. With
greatly restrictive finances, many of their services will no longer be available. This
will leave room for numerous private entrepreneurs to fill the gaps. Perhaps the area
where this will be most felt will be healthcare. As I have written in US Healthcare
Delivering a Heart Attack!, financial conditions will force major reductions in Medicare
and probably private insurance plan coverage as well. Individuals will have to pay
directly for many more services.

With patients in the drivers’ seat by having to pay directly for numerous healthcare
services, doctors and healthcare service providers will have to compete in ways they
never had imagined before. Alternative therapies such as Chinese medicine,
homeopathy, ayurveda, meditation, etc, will compete on a more equal footing with
established healthcare practitioners, drug plans, and so on, to provide health
remedies. It will be messy and likely finally force down the prices of many healthcare
services that had been rising in prices far faster than incomes. Finally, healthcare will
become more affordable to Americans. But as in any competitive marketplace, those
that offer the most cost-effective services and products will gain most.

There is also the opportunity for eventual US energy self-sufficiency, particularly as

many forecasters believe that oil will become ever more expensive—most especially
in devalued dollar terms. Renewable energy systems—wind, sun, geothermal, etc —
all have the capacity to vastly increase output. An article by Karin Rives on February
18, on the website United States Mission referred to a Bloomberg New Energy
Finance report that said US onshore wind power electrical generating costs are now
about the same as for coal-generated power. The gradual transfer to electrically
driven vehicles is also just beginning.

Furthermore, if environmental safeguards can be found, shale gas deposits in the US

could go a long way to ensuring US energy self-sufficiency. In “Facts About Shale
Gas”, Washington DC based API states that the US has over 100 years of supply at
current gas consumption rates. Moreover, an MIT study reviewed in the New York
Times by Matthew L. Ward on June 25, 2010, foresaw natural gas usage doubling
over the next several decades to 40 per cent of the US energy market.

Thus, US ingenuity in energy production could substantially change its energy mix.
The US could become much more self-reliant while dramatically decreasing its oil
related imports that today account for more than 50 to 70 per cent of its trade
deficit.

The financial conditions that will befall the world when the US dollar crumbles will
probably lead to trade restrictions and tariffs in the US and in many countries. US
manufacturing, behind a tariff wall and ‘buy America’ policies, together with a
shortage of imported goods, will re-invigorate American manufacturing and
technological prowess. Mr Celente predicts an ‘elegance trend’ and the need for
durability in all things manufactured.

Similarly, Mr Celente forecasts a rebirth of American agriculture. Americans will

demand real, natural food and it will also be grown abundantly in numerous urban
and roof gardens.

Looking out over the next few decades, the US has another advantage over other
large developed countries. It is expected to have the most favourable demographics
as well. By 2050, according to the UN’s 2008 population database projections, the
US dependency ratio is forecast to be 63 dependents per 100 working age
individuals, compared to 96 for Japan and 74 for Europe.

The next few years will be difficult for America. But beyond that is its revival. Its
unsustainable debt burden will be substantially reduced and US governments—
federal, state and local—will be financially forced to live within their means. This will
entail a huge restructuring of what they do and in the process provide major
opportunities for new entrepreneurial activities.

Healthcare, energy, food, manufacturing and technology, will be among the areas
that will undergo transformations that will lead America and the world into a new
era. A new American spirit probably arising sometime this decade will give rise to the
birth of a new US economic paradigm.

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