In a recent interview with Financial Sense Newshour, Dr. Alan Beaulieu, President of ITR Economics and author of the must-read book Prosperity in an Age of Decline, explained to listeners how the world's largest economy, the US, is likely to enter a Great Depression by 2030 given three very important trends: growing interest payments on debt, healthcare costs, and a return to higher levels of inflation.
As President of the "oldest, privately-held, continuously operating economic research and consulting firm in the US," Beaulieu noted the focus of their analysis is not to scare investors, but to face the objective reality of these forces and help business leaders respond appropriately to changing economic conditions.
Addressing the issue of indebtedness, Beaulieu noted how all western industrialized nations struggle with high debt to GDP ratios and this will only increase in the years ahead. In the US, according to projections by the non-partisan Congressional Budget Office, interest payments alone will consume substantial amounts of the federal budget in the decades ahead, he noted.
But the real trigger for a future crisis will likely start with Japan: “their numbers are worse than ours’ in terms of debt and demographics. They don’t have enough children and they don’t like immigration.” Eventually Beaulieu sees the Japanese government having to sell US Treasuries in such large quantities that it puts downward pressure on the US dollar and leads to higher interest rates. Japan “begins a trend that starts to snowball,” he said.
In this scenario, the US will not be well equipped to handle higher interest rates or a declining dollar in large part because of health care costs. Beaulieu predicts that the US—with the most expensive health care system in the world—will eventually suffer the consequences of out of control spending: “we can’t afford this system now… when you consider that 10,000 people a day are retiring you balloon the cost of the system as we move into the 2030 timeframe [and] it becomes unsustainable.” Beaulieu cited the high cost of end of life care as a particularly acute problem for the United States.
Inflation is also a major concern of Beaulieu in Prosperity in an Age of Decline. Looking back through history, he noted that deflationary trends last at most thirty years and believes in the coming decades we will be dealing with the negative effects of high inflation, even as few expect it now. “We have the trigger in place for everything we need for higher inflation,” Beaulieu asserts, including rising wages both in the US and around the world.
Beaulieu noted how in its initial stages everyone from bankers to wage earners welcome some inflation since it hides or "forgives a lot of sins," he said. But as happens all too often, policy makers are slow to respond to what eventually becomes a dramatic loss of purchasing power and central banks aggressively tighten. Beaulieu believes that by 2030 or so most major governments will be so pressured by demographic headwinds and debt that any additional borrowing or stimulus won’t work, sending the US and global economy into a severe contraction.
Though Beaulieu sees major trouble past the next decade, when asked about his outlook over the next year or two, he said they don't expect to see a US recession until 2019 and that we are likely to see a major transition from deflation/disinflation to rising inflation starting next year, which will be reflected in commodity prices and other asset classes that he outlined during the interview.
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Link to interview: Is the US Headed Towards a Great Depression? ITR Economics’ Dr. Alan Beaulieu Explains
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