A J Skurdahl is a college freind of mine. He has offered his view of the future. He's an investment guy. I find his view a little dark but certainly worth reading. I love future stuff. When there's only bad news Jesus is all you will have left., That's bad news for those who don't believe and really good news for those who do believe, because Jesus is all you need. Gene
What Lies Ahead Economically? (January 2005)
Life-altering economic events happen rarely. One should approach with caution a proposition that such an event is eminent. Nonetheless, several major traumas of global impact are possible during the next few decades. Successful investment management through any of these possibilities will require careful portfolio design and investment selection. Attentive, ongoing investment management that seriously considers the possibility of calamity before the end of the decade is now crucial. Currently foreseeable traumas include:
1. An Energy Crunch. The world’s supply of oil is being used up.1, 2 Oil extraction in the U.S. peaked in the 1970s, and global extraction will peak soon, perhaps as early as 2005. Demand for oil, however, continues to rise. There is no easy resolution to the conflict between rising demand and falling supply. Sometime later this century we will run entirely out of oil, but the impact of dwindling supplies will be felt soon. The one bit of good news is that oil and gas may run out before global warming/cooling becomes an issue.3
2. Pension Plans Without Enough Money. Underfunded corporate pension plans4 threaten both profitability of corporations and retirement incomes of current workers. Underfunded government pension plans5, 6 threaten the credit ratings of local and state governments, pocketbooks of taxpayers who will make up the shortfalls and incomes of future retirees. As with any financial prediction, the extent of underfunding depends upon assumptions brought to the analysis. As the problem unfolds, however, assumptions will be tested against reality and the outcomes are likely to be very unpleasant.
3. The End of Growth. The history of global growth is ending, but birthrates and life expectancies combine to create different futures for different parts of the globe. The low birthrates of Europe, Japan, and Russia mean they will be the first to experience the shift from growth to no-growth economics. Life expectancy in Russia is low and falling, so problems will be obvious there sooner. Undeveloped nations in Africa and elsewhere have high birthrates with low life expectancy. Realizing the human potential of these societies remains a major challenge. China and the United States are perhaps the only bright spots, but with high life expectancy and low birth rates, both face challenges in providing social support to the young and elderly as the working population slips in proportion. The only model we have for a no growth economy is “pre-economic”: hunter-gatherer societies and subsistence farming.
4. Unfunded Entitlements. Because of the investment choices for the Social Security “trust fund,” Social Security is basically an unfunded retirement plan. The trust fund has been loaned to and spent by the government, leaving taxpayers “on the hook.” Originally intended as a safety net, Social Security will likely become increasingly frayed over coming decades. Every five to ten years it will become a political “hot potato” as the rolling 75 year forward projection predicts a growing gap between tax income and payment obligation for the government. Medicare and Medicaid share the funding issues of Social Security, except that medical costs have been escalating even faster than general inflation.
5. Global Warming. While the specific causes still bring some debate, the simple fact of global warming is now established. Erratic, volatile weather and melting icecaps with rising sea levels are two apparent symptoms/results. As environmental changes play out over coming decades, economic impacts will be challenging.
6. Terrorism. Sir John Templeton’s well known quote that the best time to buy is “when there is blood in the streets” may unfortunately become literally true. Whether you think of it as World War IV, Twentieth Century Warfare, or simply terrorism, the sad fact is that the modern world is learning to function in the midst of bloodshed. Countries such as Israel have demonstrated the possibility of building a viable social and economic structure in the face of ongoing terrorist attacks, but widespread use of terror globally portends difficult times ahead.
This is a sad list of unpleasant future possibilities. Other than the combination of events that combined to create the Great Depression, no other modern era has held such potential for unhappy outcomes. Successfully managing one’s money and investments through the upcoming decades will require concentration, skill and good fortune. The help of a professional who understands one’s personal goals and style as well as external factors will be prudent.
A.J. Skurdal, Ph.D., CERTIFIED FINANCIAL PLANNER™
Senior Financial Advisors, Inc.
Financial Network Investment Corporation
11911 NE 1st Suite 312
Bellevue, Washington 98005
(206) 525-2524
aj@sfai.net
Securities offered through Financial Network Investment Corporation, a registered broker/dealer and member SIPC. Financial Network and Senior Financial Advisors, Inc. are not affiliated companies.
1Out of Gas; Goodstein, David; Norton, 2004
2http://www.Princeton,edu.hubbert/current-events.html
3http://www.newscientist.com/news/news.jsp?id=nx99994216
4http://www.pbgc.gov.news/press_releases/2004/pr04_53.htm
5http://www.gao.gov/archive/1996/he96056.pdf
6http://www.Wilshire.com/Company/2004_State_Retirement_Funding_Report.pdf
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