A couple of weeks ago I decided that the muddle through economy was the most likely scenario for the United States in 2012. Having made that decision the next course of action was to investigate how the muddle through economy scenario will impact my personal finances and the place I work. Today I read a nice summary of the likely impacts of a muddle through economy in a newsletter from John Mauldin. This summary is a much better explanation of my beliefs concerning the economy than anything I have written. In the newsletter he quotes Gary Shilling who says,
Gary identifies 9 causes of slow global growth in the years ahead:
1. U.S. consumers will shift from a 25-year borrowing-and-spending binge to a saving spree. This will spread abroad as American consumers curtail the imports of the goods and services many foreign nations depend on for economic growth.
2. Financial deleveraging will reverse the trend that financed much global growth in recent years.
3. Increased government regulation and involvement in major economies will stifle innovation and reduce efficiency.
4. Low commodity prices will limit spending by commodity-producing lands.
5. Developed countries are moving toward fiscal restraint.
6. Rising protectionism will slow””even eliminate””global growth.
7. The housing market will be weak due to excess inventories and loss of investment appeal.
8. Deflation will curtail spending as buyers anticipate lower prices.
9. State and local governments will contract.
My first concern is that we may be embarking on a downward spiral in international trade. Although several people I have spoken to are in favor of protectionism for a variety of reasons, the economic impact on certain industries in the United States could be higher costs and lower sales volumes. So we may even greater economic dysfunctionality in 2012 than in 2011. What I mean is that some sectors of the economy might find themselves facing rampant inflation while other sectors are facing stagnant growth or even rampant deflation. Hmmm maybe I should start working on the other implications of the summary.