The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History
By Harry S. Dent
I blogged about this book when I began reading it the other day.
Since then I finished reading the book, attended a lecture by the author, and discussed his ideas with others at some length.
Dent's premise is that economies are people spending money and that economic performance can be predicted based on how many people are in the economy, how old they are, where they live, and what they are buying. And the last two are largely dependent upon the first two.
So he believes that the United States baby boom population has now moved beyond the peak in maximum spending. He bases this on statistical research but also offers several possible reasons to explain it including the need to save for retirement, fear of economic uncertainty, downsizing, adopting slower life styles, and so on.
As an example he discussed the statistic that people buy their largest house at age 41. The friend and I who attended the presentation looked at each other and smiled because we were both that age when we built our largest homes. Dent showed a graph that plotted the age of Harley-Davidson buyers and it startling how sharply the graph shot up and just as sharply shot down.
I don't really like learning that my own buying habits are so predictable. I like to think of myself as being unique. And, yes, it is nearly hysterically funny that all of my group believe themselves to be just as unique. So even in that we are the same!
Now since all these baby boomers are now spending less and saving more it stands to reason that all the stuff we were buying is going to also decline unless someone else comes along to buy the same stuff.
But the people that will come along and will buy at least some of the same stuff are about 20 or more years away. And since they are our kids they will not buy exactly the same stuff as their parents just as we did not buy the same stuff bought by our parents.
So in Dent's discussion the good part is that there is another group coming up behind us in the United States. That's because our immigration adjusted birth rate is about 2.1 children per family. He says that is about the minimum to keep things as they are.
That's not true in Europe where rates range from as low as 1.3 to 1.7 or 1.8 per family. So in Europe there is no future population bubble and that means, according to Dent, that those economies are permanently declining. Japan is the same except even further along because in Japan there was no post World War II baby boom.
China is behind the United States according to Dent by about 10 years. They would be in much better shape except that about 20 years ago the government mandated that families must not have more than 1 child. Dent predicts this will eventually lead to a declining economy there as well.
India and other emerging nations around the world including several in South America will continue to have growth.
What all this means more specifically in the United States is that our present recession will turn into a major deflationary depression after a short recovery in the next year or so. That deflationary depression will last until about 2012 according to Dent.
Deflation is where the price of things continues to decline. Dent predicts that home prices , for instance, will decline to about the level they were in 1987 or 1988. In some areas that is a massive decline. In my area it is not so much because our property values have not bubbled up as much as in California or Florida and other places.
He believes everything will deflate including all commodities. And, yes, he does think gold will fall as well as everything else. Near term - next 18 months maybe - gold and oil and natural gas and some others are likely to increase. But afterward they are likely to fall is his prediction.
How far will they fall? Well he thinks oil may fall below $20 per barrel. That's really bad news for my area although that's about what oil cost in 1998 when I came to live with my Mom and Dad.
Dent believes that unemployment is likely to reach nearly 15% before it begins to decline.
Someone asked Dent in the question and answer session following his speech if he had presented this material to our president and congress. He said that many of them were aware of his ideas but that generally he was not well received by politicians. The reason he explained was that they concluded from his remarks that political action was largely irrelevant in relation to changing our economy. He said politicians do not like to think of themselves as irrelevant in anything. Moreover their constituents certainly do not like to think of them as irrelevant and demand action.
Now the $64,000 question (which I guess now might be $64 Trillion) is what do I think about Dent and his ideas.
I've thought a lot about what I think about him. And I've reached a conclusion.
I think his statistics are accurate.
I think his premise is probably correct.
But I think there are a couple of problems I see with his conclusions and predictions.
People can surprise you for one thing. They can act predictably for 50 years and then all of a sudden do some of the strangest things. That's especially true when there is stress. Sometimes it is good and sometimes not.
Then there are external circumstances. Dent tries to account for some of these. But I think the problem is that it is simply not possible to know them all.
So I do think there is going to be some deflation and I think the recession is going to be worse than anyone wants it to be.