Well, by the time you are reading this, it will be 2012. I hope every one of you has a happy and prosperous one! Each year, I like to take a look at my predictions from last year to see how I did. And then I’ll let you know what I think is in store for us this year.
Last year, I expected 2011 would bring with it a lot of municipal defaults and even some states demanding rescue fund from the Feds. While we haven’t seen a TARP-like facility set up to manage the damage, Bloomberg Businessweek reported(1) this last December,”Municipal-bond defaults, including bankruptcies and the use of reserve funds for payments, may set a record this year… If you add tobacco debt and AMR (American Airlines who backs $3.2B of munis for airport facilities) bankruptcy …we’re going to hit $20B this year.” In fact, California and Ohio both have had to dip into reserve funds, to cover their debt payments this last year. Next year, I expect we’ll set another new record unfortunately.
Likewise I predicted our national debt would hit $16T by the end of 2011. I appear to have under-estimated how much our US Congress could slow the pace of debt growth. However, by the time you read this, our debt will have likely finished the year at $15.5T. So I wasn’t by much. Look for our national debt to hit $17T, by the end of 2012.
Next, I expected our Gross National Product (GDP) to show the economy growing at 2.6% for the entire year. While forth quarter information is yet to be released, my forecast appears to have been overly optimistic. The first three quarters of 2011 have only averaged a growth rate of 1.7%. Consequently, 2011 seems more likely to finish at 2.0% for the year, assuming a robust holiday season. In this case, my error seems to stem from the proliferation of regulations. I had expected the 2010 election results would have at least mitigated the torrid pace we set in 2009 and 2010. However, the agencies at almost every level of the Federal government have only increased the rate of new rules and regulations in 2011. In a country where we can’t even agree to an oil pipeline between here and Canada, look for GDP to dwindle further in 2012. My guess is we’ll be lucky to get a 1.5% growth rate this year.
What else do I see happening in 2012, you ask? Well, let’s start with Europe. The ECB (European Central Bank) President, Mario Draghi, is already warning(2) member countries against breaking with the currency bloc. Therefore expect at least one country, probably Greece, to do just that. In addition, capital requirements coming out of Basil III will further constrain growth in Europe and the US overall. Timmy Geither will likely oversee the printing of an extra trillion, to fund an IMF version of TARP for European banks, claiming a new threat of “contagion”. Even if Timmy does not pull this kind of stunt, Bernanke and the Fed will certainly embark on some version of a QE3, some time in the second or third quarter of the year. This will cause even more inflation in gas and food and gold. I think we’ll also see official unemployment in the US go back over 10%, and end the year facing a double dip recession.
On that ominous note, I feel compelled to stop here. I continue to hope and pray I am way off base, and this year marks a phenomenal economic turnaround for our country. No one would be happier than me, as this would mean real estate markets finally start to see a substantial rebound. Unfortunately the math doesn’t appear to point in that direction.
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1. http://www.businessweek.com/news/2011-12-07/municipal-defaults-may-surpass- record-in-2011-lehmann-says.html
2. http://www.cnbc.com/id/45694223
