Real Kato Blog: Ominous Signs

Think our economic outlook is rosy? Hmm.

The Bush administration points to the fact that the projected budget deficit for next year will only be $331 billion for 2005. They say this is a sign of an improving economy.

I hate to rain on everyone's parade, but there are several ominous signs on the horizon for us.

The budget deficit, the federal debt, and our country's poor personal savings rate may lead to a sudden economic crash. Part of what props up our economy right now is the fact that other countries continue to purchase U.S. debt and U.S. dollars. But if foreign investors get spooked and start to sell, that will trigger a chain of inflation, high interest rates, and recession, like what we saw in the 1970s. Many Americans, saddled with credit card debt and meager savings, will be unable to cope with such conditions; people could go broke by the millions.

Increasingly, economists are getting concerned about this possibility... hopefully people will listen to them before it's too late.

Our population is aging. That will increase the stress on our budget, as Social Security and Medicare costs will skyrocket.

The once-hot real estate market is probably peaking. A large run-up in wealth has been driven by prices of real estate in space-limited areas like New York and Miami. But that run-up cannot continue indefinitely, no matter what people would like to believe. Federal Reserve chairman Alan Greenspan said recently that "history has not dealt kindly" with that kind of optimism.

The price of oil is rising, and oil supplies will eventually run out. We still run on an economy highly dependent on oil. Thus, we're vulnerable to supply issues, whether they're caused by foreign policy problems, natural disasters, or simple lack of supply. Just now, Hurricane Katrina pushed the price of oil over $70 per barrel, as production facilities may lose months of output. OPEC is already pumping at near capacity.

We're in a fragile state, folks. This is the time we need some visionary leadership. We need a plan on how to cut our debt and increase our savings, how to give ourselves a buffer for economic fluctuations, and how to cut our dependence on oil (that's all oil, not just foreign oil).

I just don't see that coming from Bush. All we seem to get from him is sloganeering. It's downright depressing.

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