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Is The U.S. Doomed To Years Of Slow Economic Growth?

Maybe not!

shoppingMallGreenFor decades the US consumer has fueled the fires of economic growth. Spending like drunken sailors the consumer has drained savings and run up a mountain of debt. Today with their savings depleted, their investments pillaged and their homes devalued, it will take a decade before they can spend again. We must pay the piper and are doomed to a lost decade. Or so goes the current economic mantra.
But in a new report entitled “The New Normal Will Likely Be ….Normal“, Wells Fargo’s Chief Investment Strategist Jim Paulson argues our economic recovery will be far better than expected. Paulson argues the seeds of our recovery were planted in the midst of our decadence. In short:

A: For almost two decades US consumers have spent far beyond their means. But that spending has helped jump start third world economies around the globe. We helped create a new world of consumers who have jobs, savings and aspirations for a better life. As we destroyed our savings, we created an emerging class of consumers around the world.

B: During the last expansion (2003-2006) overall real GDP growth averaged 3 to 3.5 percent. That was comprised of about 3% from the household sector, 1% from the business sector and a “net loss” of about 1% from our trade deficit. Let’s say that in the next expansion consumer spending drops to 1% of GDP. Business still contributes 1%, but rising exports now contribute 1%. Overall, GDP growth still remains at 3%, but its composition has changed.

Paulson argues several things must be put in place to make this happen:

1. Emerging world economies must no longer be allowed to continue currency pegs at cheap (below market) levels. Many emerging nations currencies are undervalued and would appreciate considerably were this to happen. China immediately comes to mind.

2. Emerging economies must no longer be able to treat workers like indentured servants. Worker protections, minimum wages and benefit packages must be enforced.

3. Environmental laws will need to be enforced worldwide.

A more level playing field will be created.

Should these things happen, the absence of the US consumer need not be a “death knell” for future economic growth. To read the article in it’s entirety, go to www.wellscap.com