2013 Predictions For The American Economy After The Fiscal Cliff [Op-Ed]

COMMENTARY | Many 2013 predictions for the American economy are particularly gloomy because of the looming Fiscal Cliff. As previously reported by The Inquisitr, less than half of Americans feel that Congress will be successful in avoiding the Fiscal Cliff. Never mind that the new Congress will have to tackle the federal debt ceiling before the end of January. Quite frankly we are all just fed up with them. But what are economists saying about the future of the economy after January 1?

One of the best indicators for how people actually view the future is whether or not they are willing to buy a house. Typically, a mortgage is probably one of the most expensive bills that an average household faces. So when we make 2013 predictions we must consider that housing prices in the United States are going up and many hard-hit markets are improving. This is mostly due to QE3 and QE4 driving mortgage interest rates to record lows, which has many including this writer refinancing their house, but overall this is still a good sign.

According to BusinessWeek we should also consider whether or not new restaurants are opening and whether high-end hotels are hosting conferences and a high occupancy rate. While many business leaders are switching over to using virtual commuting and conferencing, if you see an increase in business meetings that can only mean good things for the economy.

Unfortunately, that only holds true for big corporations. As previously reported by The Inquisitr, the number of new small businesses in America has been rapidly shrinking over the last few years. Economic recovery is usually tied to an increase in small businesses and the resulting increase in employment. Instead, we are still seeing high unemployment levels yet since the start of the recession in 2008 the American economy’s GDP has increased by almost a trillion dollars, going from $14.22 trillion to $15.09 trillion. What to make of this then?

Globalization and automation technology are the primary forces behind declining middle class wages and employment levels. While this article is focused on 2013 predictions, in the relatively near future robots will be replacing many middle-class jobs. The declining value of the US dollar caused by federal money printing will have many negative repercussions but the silver lining is that as the dollar declines the value of American workers increases when compared to those in China and India. This already has some large corporations shifting their factories back to American shores.

The book Aftershock: The Next Economy and America’s Future by Robert B. Reich, a former Clinton economic adviser, points out one of the major issues that the American economy is facing:

“[Henry] Ford understood the basic economic bargain that lay at the heart of a modern, highly productive economy. Workers are also consumers. Their earnings are continuously recycled to buy the goods and services other workers produce. But if earnings are inadequate and this basic bargain is broken, an economy produces more goods and services than its people are capable of purchasing.”

Another book also entitled Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown paints an even grimmer prediction for 2013. The authors David Wiedemer, Robert A. Wiedemer and Cindy S. Spitzer correctly predicted in a previous book that the housing bubble would lead to a great financial collapse. Their new book predicts that it’s possible for the next financial collapse to begin in 2013 and they suspect a worst case scenario could be as bad as the Great Depression:

“The main thesis in Aftershock is that these bubbles – this dollar bubble and this government debt bubble – will burst. It is not as if it will not burst for 15 or 20 years. We say it is somewhere in two to four years. You need to be prepared for it.

The debt will always be funded as long as the Federal Reserve stands willing to buy all the bonds that the government sells. At some point, that creates inflation: that pushes up interest rates. The Fed will fight those interest rates going up. At first, they can do it. They just print more money. That keeps interest rates down, but ultimately that inflation will force them up. We cannot just pull the money out and raise interest rates now; it’s going to pop the real estate and stock bubbles.

What is going to happen is the Fed is going to lose control of those interest rates. When you print too much money, it gets you control short-term, but it is a recipe for losing control long-term. With those interest rates going up, what is going to pop? The stock market and real estate bubbles. All of that is what kicks off the big problem going forward. Normally you would say the bond market is going to be the problem, but I would tell you that it is actually going to be more stocks and eventually even real estate combined. Then ultimately, the bond market starts to go down, and down quickly once it starts.

When the dam finally breaks, it will break quickly. Literally, it is in a matter of months or certainly no more than a year once it really starts to go.

You get very, very high inflation. We could have stock market holidays and things like that.

The big difference between now and the depression is that the government is also in trouble at this point. We are really not going to have a huge failure until the government kind of comes to its wits’ end. It will, but it comes as a last massive orgy of money printing to try to save everything – unlike anything you have seen yet. QE1, QE2, QE3 is nothing like what the Fed has to do when this thing starts to fall. They have to print, buy, and buy, and buy, and try to keep up the falling house. They will not be able to do it, but that will be the reaction.

Then at some point, it is not going to work and the whole thing goes.”

Do these predictions read at all like a script that Congress has been following closely? Still, just because these economists successfully predicted the first recession doesn’t mean their 2013 predictions will also be correct. In 2005, Philip Tetlock of UC Berkeley released a landmark study that looked at 82,000 predictions over 25 years by 300 leading economists. For our 2013 predictions, looking to a crystal ball might actually be a better option than economics experts. Tetlock found their predictions were no better than random guesses, and and famous predictions were the least accurate of all. Another bit of good news is that Wiedemer himself is also not that worried about 2013 based upon a December 1 podcast (seen below).

What is your 2013 predictions for the American economy?