2008 Predictions

(The following predictions, in normal font, were made in November, 2007. Quarterly updates are in bold italics.) I thought it would be fun to make predictions for 2008, based upon the theory presented in Five Short Blasts. Naturally, these predictions will focus primarily on the U.S. economy, although I may stray into other areas of personal interest here. In some cases I’ll include some “long shot” predictions just for fun – predictions that even I don’t have a lot of faith in but can see potential for happening in the coming year. All of the following issues will ebb and flow over the course of the year, but look for the year to end essentially as predicted below. OK, with that said, here goes:

Global Population:   The current population stands at about 6.5 billion people. We’ll end 2008 with 6.8 billion. This will further fuel global unemployment and intensify competition between countries for the U.S. export market.   Also, resource shortages and deterioration of the global environment will intensify.

End of 2008 results:  Depending on which data source you believe, the world’s population grew by another 80-100  million people in 2008, an amount equal to the populations of California, Texas and New York combined, intensifying over-crowding and unemployment around the globe. (We ended the year with somewhere between 6.75 and 6.87 billion people.)  Forty million workers have been added to the global labor force at a time when jobs are vanishing. Food prices soared as grain was diverted from food to biofuels to address soaring oil prices, which finally fell as the global economy collapsed. And the effects of global warming are intensifying as well. An ice shelf the size of Manhattan, which had existed for thousands of years, broke away from Anarctica, alarming environmentalists.

U.S. Population:  Fueled mostly by legal and illegal immigration, the U.S. population will continue to grow, reaching almost 305 million by year end. This population growth will tend to reinvigorate the housing market and the construction sector of the economy, but overall will continue to fuel unemployment.

End of 2008 results:  The Census Bureau estimates that we ended the year with 305.5 million people, an increase of  0.7% during the year, due mostly to legal and illegal immigration. But there may actually be a little good news here. Both legal and illegal immigration are beginning to decline, falling from a rate of 1.1 million immigrants per year in 2006 to 876,000 per year today. Perhaps the government has very quietly made a major revision to immigration policy, recognizing that it was throwing fuel on too many fires: dependency on foreign oil, carbon emissions and unemployment to name a few. My prediction that the housing market and construction sector of the economy would begin to rebound by the end of the year proved wrong, as the global economic melt-down led to more job losses, further declines in income and more foreclosures. Now it’s difficult to see a bottom.

U.S. Trade:  The trade deficit will hold at current levels of approximately $55-60 billion per month.  Exports will be helped slightly by the continued decline of the dollar relative to other western countries, but there will be little or no devaluation relative to Asian currencies.  Imports will continue to grow. The net result will be a steady, massive trade deficit.

End of 2008 Results:   Contrary to the predictions of economists and other “experts,” the U.S. trade deficit, which the International Monetary Fund blames for the global economic collapse, didn’t decline a bit, despite the falling dollar. The dollar did, in fact, fall like a rock vs. the Euro, with much less dramatic declines vs. Asian currencies. The monthly deficit with China set records month after month. And, although imports declined slightly toward the end of the year, exports declined even faster. This prediction that the trade deficit would persist was perhaps the easiest of all of my predictions because, contrary to the beliefs of economists, the deficit has nothing to do with currency valuations and has everything to do with the disparity in population density between the U.S. and so many grossly overpopulated nations. And nothing has been done to address it.

U.S. Economy:  The credit crisis will deepen as the trade deficit continues to send hundreds of billions of dollars to foreigners who will demand safer investments with higher returns in the U.S., an ever-shrinking commodity. Tighter credit will definitely lead to a recession, deeper than economists are forecasting.  Unemployment in the U.S. will rise to approximately 5.5%.   

End of 2008 Results:  What appeared to be a “credit crisis” in late 2007 escalated into a full-blown global economic melt-down by the end of the year, the effects of which were somewhat muted by massive government intervention. Although my forecast for unemployment was on the pessimistic end of the scale at the time, the final results were much worse, ending the year at 7.2% unemployment.

Look for law suits by foreign investors against American financial institutions, alleging fraud in the valuation of assets.

End of 2008 Results:  Hasn’t happened yet, which I find incredible, but it’s coming.

Housing prices will stabilize as the demand for housing by a growing population, coupled with government programs to pump money into mortgage lending, will turn housing prices around by year end.

End of 2008 Results:  Housing prices continue to decline as the government’s program for boosting mortgage lending failed when banks hoarded the money given them by the government. New approaches taken at the end of the year, like Fannie and Freddie buying mortgage-backed assets, has yielded results in declining mortgage rates, but it’s too early to see any impact on housing prices.

Look for the Bush administration to take a “budget deficit be damned” approach and start pouring large amounts of cash into the economy in a futile effort to pull the economy out of recession ahead of the presidential election.   The federal budget deficit will swell to $400 billion per year.

End of 2008 Results:  This may have been my best prediction. Although the experts were forecasting a tough 2008, no one envisioned such massive government intervention in the economy. Between the $700 billion “TARP” fund of the Treasury Department and the countless bail-out programs initiated by the Federal Reserve, it’s difficult to keep track of the amount of intervention, but it totals trillions of dollars. The federal budget deficit easily topped my prediction. And it looks like there are more, larger interventions to come.

The Fed will not respond with significant interest rate cuts, at least not as much as the stock market would like. The Fed will be constrained by high inflation (lead by oil prices reaching $120/barrel by year-end and by higher food prices) and by the need to keep interest rates up to attract foreign investment. The Fed will end the year with rates not less than 3.75%.

End of 2008 Results:  Bad prediction. The global economic collapse sent commodity prices, especially oil, plummeting. This gave the Fed the breathing room it needed to cut interest rates to near zero, a move that was mostly symbolic and psychological. The already relatively low interest rates simply weren’t a factor in the economic collapse, and lowering them further had no effect whatsoever. 

Gas prices will rise to over $3.50 per gallon.

End of 2008 Results:  I nailed that one, but even I was surprised at how much these high prices cut into consumption, driving the price right back down again.

The U.S. stock market will be flat in ‘08 as measured in terms of the S&P 500.

End of 2008 Results:  I blew that call. Remember, at the time I made the prediction, stock prices had already declined by about 7% from their October highs. A prediction for a flat 2008 was at the pessimistic end of the scale. Who could have envisioned a complete collapse of the financial system?

Long-Shot Prediction: There will be at least one Enron-style collapse of a major financial institution as off-balance-sheet schemes unravel.

End of 2008 Results:  Wow!! I thought a prediction of just one such collapse was a “long shot!” “Credit default swaps” were the culprits in the collapse of not just one but virtually every major financial institution, including Lehman Brothers, AIG, Merrill-Lynch and Washington Mutual just to name a few. Every investment bank was wiped out and commercial banks have barely survived with a massive infusion of funds from the Fed. 

Long-Shot Prediction: Either Chrysler will be broken up and sold off (and thus cease to exist) to raise capital for Cerberus or Ford will declare bankruptcy.

End of 2008 Results:  I’ll take credit for correctly predicting this one. Yes, Chrysler survived, but only thanks to government loans at the end of the year. What took everyone by surprise was that General Motors nearly collapsed as well. Ford survived by the skin of their teeth, but only because they mortgaged every asset they had to raise cash while it was still possible to get financing. Otherwise, they’d have been in the same boat.

Global Economy:  Long-Shot Prediction: Look for a global economic slow-down to trigger another currency devaluation war like we saw in the late 90’s.  

End of 2008 Results:   It’s not here yet, but there was clear evidence of it beginning as central banks worked in unison to prop up currencies. I still believe it’s coming as export-dependent Asian nations are hit hard by recession, sending unemployment soaring as exports decline. The competition for the U.S. market is really heating up.

U.S. Presidential Election:  This is impossible to forecast. However, look for the economy to become the number 1 issue. This does not bode well for Republicans, although they may have a chance if Clinton is the Democratic nominee, thanks to a huge turn-out among Republican voters and independents turned off by her polarizing style.  

End of 2008 Results:  It was indeed “impossible to forecast” in November of 2007. But, in general terms, the prediction was dead on. The economy did indeed take center stage and it proved fatal for the Republicans. Will Obama and his staff be smart and courageous enough to address the underlying causes of our problems or will they continue the approach of merely treating the symptoms? Will they tinker with interest rates and government spending programs or will they finally take on the effects of overpopulation, both home-grown and imported through misguided trade policy. Time will tell. 

Final Score:

Correct Predictions: 9, including both “long shot” predictions

Wrong Predictions: 4, though I think my prediction about a currency valuation “war” will ultimately prove correct.

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13 Responses to 2008 Predictions

  1. howard says:

    concerning jobs? i wonder what percentage of jobs are private sector. even when the government , being it federal , state ,local , even when government outsources a job , this is still a government job. to me , this is a false economy. concerning finance? the buying and selling of stock. to include this in the gross domestic product , this to is a false economy. if obama thinks that the banks and the stock market will prevent the greatest depression america has ever seen , well i think that he had better rethink his approach. it is time to cancell nafta , cafta , shafta. and drop out of gatt , and the w t o. the only way to heal america is full employment. any product manufactured in a foreign country will be taxed. we will manufacture all of our own products. when you walk into walmart , every product will say 100% made in america.

  2. Bodner says:

    Well, I have been trying to make a go of it and blogging my brains out, but I certainly have to give you credit. That was excellently done. I don’t always make such clear points and a lot of blogs I read are poorly written and leave wondering just what were they trying to say.

    I find it so hard to come up with new ideas and rewritting someone else’s work can backfire. Particularly if you don’t know whether they are truly an expert in their field. The longer I work on the internet the more I wonder about most of the content. However, to be fair their are many aurthors in the print media out there that espouse their ideas as fact when they are clearly questionable. It is almost as easy to have a book published as an ebook.

    Anyway, thanks for the great blog.

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