Spending slowdown may last 15 years...Spending slowdown will last 15 years, author says
Depression Ahead
Jonathan Ratner,Financial PostPublished: Saturday, February 14, 2009
Stockmarkets and commodity prices may have one last gasp and climb backtoward their highs on the back of massive government stimulus programs,but a spending slowdown by Baby Boomers will create an even weakereconomic environment that will last for the next decade and a half,according to Harry Dent.
The demographics-based economist andauthor of The Great Boom Ahead, published in 1993, and The Roaring2000s back in 1998, outlines a gloomier long-term future than even someof the most bearish economists are currently forecasting. In his newbook, The Great Depression Ahead, How to Prosper in the Crash Followingthe Greatest Boom in History, Mr. Dent warns that the de-leveragingprocess coming out of the banking crisis and the collapse ofcommodities is too big a tide for government to fight.
"Thedemographic slide is just beginning," he said in an interview. "We'veseen the worst for now, but were going to see worse ahead.
Theauthor points out that older people don't need to buy a bigger house ordrive a car as much now that their kids are gone. Add to that the factthat they are scared and extremely concerned about the sharp decline intheir retirement savings, and it doesn't bode well for durable goodsspending.
But it is precisely this type of economic activity thatis needed to get the banking system going again, Mr. Dent insists. Evenif the banks were willing to lend, he doesn't see much demand for loans.
"Thestimulus works when the generation is still rising and needs to spendmore money, buy more houses and get their kids in college," he said.While retirees may still go on cruises and live relatively well, theyare expected to spend less and focus more on saving for retirement.
"It'snot going to turn the economy around," Mr. Dent said, predictinganother strong stock market crash late in 2009 or in 2010, followed byan even deeper downturn into 2010 and 2011. As for de-leveraging, theeconomist expects that trend will continue into 2012 or 2013 before theeconomy can expand again.
In major banking crises like this, asopposed to a typical recession, things usually take about five years towork themselves out, Mr. Dent noted. This time around, he doesn't seethe North American economy coming out of this demographically until theearly 2020s.
As a result of the sheer size of the stimulus, theeconomist predicts the Dow Jones Industrial Average could rise as highas 11,800 sometime around the summer. He also thinks oil prices couldbounce back to between US$80 and US$100 per barrel. However, Mr. Dentsees crude as low as US$10 between 2012 and 2014, and the Dow around4,000 potentially sooner.
"People need to be patient and waitlonger to buy houses, wait longer to get back into the stock market,and use whatever bounces we get this year to get out, because this isnot over."
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