Perhaps you have been watching the History Channel on television (like me) and have seen their series on prophecy. To capsulize and summarize the series, they essentially predict the end of the world in 2012. To support this belief, they employ the predictions of Nostradamus, Mother Shipley, Edgar Cayce, Jeanne Dixon, the Mayans, and many others. While I put no stock in these end-of-the-world by 2012 predictions, I do believe 2011 could be a year of economic upheaval unlike anything we have yet to see. My belief is based on four fundamental trends quickly converging together, that according to all I’m studying, will reach their crescendo in 2011. Below is a thumbnail sketch of the four horsemen of an economic apocalypse.
Taxes
Major tax increases are projected for 2011 to pay for the massive government takeovers and intrusions into the private sector. These new taxes, coupled with the end of the Bush tax cuts, will push the top tax rate in the United States including state taxes to 52%. This rate will be higher than most every European country, and nearly the same as socialist Sweden. On top of this, the capital gains tax will jump to 25%. These huge hits on individuals and corporations will send companies and jobs overseas, stifle new jobs and companies starting up in this country, and essentially wipe-out investment in our economy.
Unemployment
Despite trillions of dollars being dumped into this economy, unemployment is rising upwards to 10%. The stimulus money has created few new jobs, and has only managed to “prop-up” old state/local jobs for another twelve months. When this money is gone, massive lay-offs at the local and state levels will follow. States are going to slash their budgets to fiscally survive or face bankruptcy (California, New York, New Jersey, Hawaii, and Oregon to name a few), and the result will be unemployment in the 15% - 20% range. According to most economists I’ve read, for every dollar of gain the stimulus money created positively in 2010, that gain will be erased by $1.23 of negative effect in 2011.
Inflation
Our huge deficits and weak dollar monetary policies, have left the U.S. Dollar in a declining demand. For the first time in our history, the dollar is not the currency of choice. Investors are abandoning the dollar for the euro because of our “Fed” policies of making money out of thin air and flooding the market with these cheap dollars. To keep our currency “acceptable”, interest rates are going to have to be raised to double-digits. Remember, inflated money (currency with no precious metal backing) always brings high interest rates. High interest rates slow or even halt the purchase of big-ticket items. This creates a slow-down in production and layoffs for workers.
Legislation
Congress is poised in 2010 to pass massive new spending programs such as health care reform, cap and trade, legalization of illegal immigrants, and “card-check”. These huge entitlement/expenditure programs will be the straw that breaks the camel’s back. There is no way to pay for these programs without huge tax increases, further deficit spending, or both.
In conclusion, 2011 could be the worst financial year in our lifetime. Double-digit unemployment, double-digit interest rates, huge taxation rates, and soaring energy costs are looming ahead . . . may we prepare ourselves.