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Friday, December 31, 2010

2011 economic predictions

1. U-3 unemployment will climb above 10 percent. The real unemployment rate will be much higher, but it will be masked by a decline in the Labor Force Participation rate below 64 percent. The employment-population ratio will fall below 58 percent for the first time since 1984.

2. Real GDP growth for 2011 will fall short of the 3.4 percent predicted by Goldman Sachs. It will remain positive in initial reports throughout the year, but the final quarter will eventually be revised down into negative territory. The legitimacy of GDP as a valid metric for economic growth will increasingly be called into question as the positive numbers are belied by actual conditions.

3. The 2011 federal deficit will exceed the projected $1.27 trillion despite the Republican House majority. This will likely be the result of emergency spending required for an economic or military crisis.

4. More than 230 banks will fail or be seized by the FDIC. This will represent around 1.2% of total deposits. Bank of America will be effectively nationalized to prevent it from failing.

5. TOTLL will decline below $6.3 trillion on an unadjusted basis. (Below $5.9 trillion adjusted.)

6. The two government sectors will not be able to maintain their present rate of debt expansion which presently averages around $450 billion per quarter. As the financial and household sectors continue to decline, all sectors credit market debt outstanding, (Z1), will fall below $50 trillion for the first time since 2007.

7. The national median existing-home price will fall below 160k from the present 170,600.

8. There will be a serious Euro crisis, most likely brought about by a sovereign default or a nation announcing it will be leaving the Euro. Italy is the most likely candidate.

9. One U.S. state and at least three major cities (100k population plus) will attempt to file for bankruptcy or federal bailout. (It's unclear if states can file for bankruptcy and public employee unions will oppose the city filings.)

Bonus: Sitemeter-recorded visits to the blog will increase from 2,370,028 visitors in 2010, (197,502 per month) to 2,750,000.

You might reasonably object that these predictions are essentially the same as they were last year. And while that's true, you should also observe that very little has substantially changed since one year ago. The downside factors have increased somewhat thanks to Europe's problems, the growing budget deficits and the uncovering of the mass mortgage fraud, but aside from anemic G-driven GDP growth, and higher gold and stock market prices, I don't see much that's been added on the upside.

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