Our economic boom has passed and the end has been in the works for more than a decade.

Click for larger graph SOURCES: Bureau of Labor Statistics; Bureau of Economic Analysis; Federal Reserve | GRAPHIC BY NEIL IRWIN, CRISTINA RIVERO AND TODD LINDEMAN / THE WASHINGTON POST

Most of life is highly predictable and the next decade will be easy to predict right here and now. The “teens’, as in the 2010’s, will be a time of great economic, political and social strife. Being an optimist and a realist, it’s easy to see those troubles coming. The economy will be in deep trouble going forward and the political and social turmoil will follow suit.

Predictions are cheap but watch these ones since they are almost impossible to avoid.

GM as a model of North American predictability

The TV networks are putting on endless decade reviews. One on MSNBC asked the question: who would have known in 2000 that GM would go bankrupt and we would be buying hybrid cars?

Actually, anyone could have seen the bankruptcy of GM for about 30 years and many predicted it. Their end was well known, only the date was a mystery. The world had learned to make more cars than people needed and the best ones were made in Japan and elsewhere. GM was a bad bet since the company kept ignoring quality and did not produce what people wanted: cheap and fuel efficient cars.

During the 90s, when world oil reserves were depleting faster than new oil was being discovered, GM enjoyed a profit renaissance based on gas-guzzling four wheel drive SUVs and trucks. I owned two SUVs and remember filling up the tank weekly for only $120. It was our divine right to drive around in style. Today I don’t own a car but contribute expenses towards a hybrid that burns $80 of gas on a 1,100 mile (1,700 km) trip to Toronto.

My prediction is GM will fail again since they have been ignoring the market for 4 decades.

The Economy

The Canadian and US economies will tank in the coming decade and so will the stock market along with everyone’s retirement savings.

When the DOW Jones and NASDAQ died in March 2000, economists predicted dire consequences since the IT sector had collapsed. To put it into perspective, the IT-based NASDAQ dropped from 5,000 to a low of 1,300. Innovation which drove growth was over.

For a quick take on the pulse of IT innovation, what is new about the computer you are using? Since, the mid 90’s nothing material has change in computers. The microcomputer technology push is over. Sure we have Windows 7 and OS X with 8 cores but the technology is old and the improvements cosmetic. (Both OSX and Windows 7 are modified versions of UNIX which has been around since the 1970s.

Technology has driven the US economy since the 1840s. We are sunk until something really new comes along. They knew that in 1998 but allowed the Y2K scare to create one last boom and then a bust.

The US decided to pump up the housing market as the next salvation of the economy, which it was for a few years. Remember “buy real estate, they’re not making anymore of it.” You couldn’t lose they said but most people did. The inflation in housing prices that drove the economy and industry collapsed like the Dutch tulip boom, and the Y2K boom.

“Yale economist Robert Shiller said in 2005, “Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is poker.””

“Ralph Block wrote in 2005: “Many baby boomers appear to have decided that the stock market won’t provide them with sufficient assets with which to retire, and have taken advantage of “hot” real estate markets and low (e.g., 5 percent) down payments to speculate in residential real estate. The number of homes bought for investment jumped 50 percent during the four year period ending in 2004, according to the San Francisco research firm Loan Performance.” Wikipedia

Consumption drives jobs and jobs drive the economy

While there seemed to be growth in jobs during the mid part of the “oughts” the reality is that no new jobs were created during the past decade in the United States.

“The U.S. economy has expanded at a healthy clip for most of the last 70 years, but by a wide range of measures, it stagnated in the first decade of the new millennium. Job growth was essentially zero, as modest job creation from 2003 to 2007 wasn’t enough to make up for two recessions in the decade. Rises in the nation’s economic output, as measured by gross domestic product, was weak. And household net worth, when adjusted for inflation, fell as stock prices stagnated, home prices declined in the second half of the decade and consumer debt skyrocketed.” Washington Post

The US GDP growth of 17% was the slowest rate in 50 years. The second lowest decade growth was 34% in the 80’s. Real household net worth fell 4% during the “oughts” so if you feel poorer, you are in the majority. Of course, huge fortunes were made and a few lost during the past decade. In fact the very rich got even richer in the past decade but that is not helping you, me and most people.

What will drive growth during the “teens”

People drive consumption and growth but our biggest market demographic, the baby boomers, is getting ready to retire and spend less. Their chances of retiring are growing dimmer unless they learn to live at a much lower standard of living. More on that later.  The population of the “West” is stagnating. We are not making babies like they did after the war.

The Chinese and the people of India are consuming more but they are not buying our goods. We don’t even make things anymore in North America. To keep inflation down, we exported production to the far east decades ago.

The rest of the developing world is waiting on the West for handouts. The real resistance to Climate Change initiatives is from people who have concluded carbon credits and other transfers to developing countries are just not affordable. They may be right.

Services to aging boomers will drive growth but not enough to rescue an economy based on production. There is nothing on the horizon that will bring back the economic growth of the 80s and 90s. Added to that, we are spending trillions in the developed world to prop up our aging economies with stimulus spending. No western democracy wants to let their country go bankrupt, although some like Iceland and Greece are on the brink.

Of course, I could be wrong. Other economists could be wrong. Somehow, we could enter a new boom era that lasts, pay off the trillions in debt we have taken on and sail off into the sunset.

I sure hope so but I don’t think it will happen just like I didn’t believe there was anything but a housing bubble propping up the last decade.