So this is recovery? Oh, you’re not so sure anymore. If not a double dip, we certainly should be worried about an extended long-term slog that might as well be a chronic recession even if economist numbers show some measure of growth. Here are five reasons to be very concerned:
The U.S. Government Has No Plan: Our flummoxed leaders grope for solutions without any direction. Scorned stimulus spending probably ignited what nascent upswing took place last year into early 2011, but that funding has run out as a result of political impasse. The current austerity government-cost cutting mode results in more jobs losses in the public sector, keeping unemployment high and consumer confidence plummeting. Big corporations make plenty of money by shifting operations overseas to lower cost countries and keeping U.S. workforces lean. Most new jobs pay less than old ones without the same level of benefits. The Federal Reserve’s only weapon is to keep interest rates at abnormally low levels—investors either can’t make any money in low risk investments or must take inordinate risks to make not very much in plays like now over-priced real estate. Under these uncertain circumstances many investors retreat into cash.
Europe is Worse: The second largest economic zone is in shambles—the UK has riots partly because austerity isn’t working to turn its economy around, and the EU is a set of dominos falling under the weight of unpaid debt. Governments have no choice but to cutback key programs which have been floating many citizens and sustaining economic growth for years. Even kingpin Germany shows signs of strain.
Who knows about China? No doubt China has become a new manufacturing juggernaut, but the world’s most manipulated economy begs us to question its growth numbers. As demand in the States and EU declines for its relatively cheap goods, those growth numbers have to drop—the Chinese middle class is expanding, but arguably not enough to pick up the slack. Meanwhile, the government must be spending itself into oblivion on infrastructure and building a score of new cities at breakneck pace. But the recent high speed train wreck points to quality control issues and corruption. This may be a house of cards. And as someone asked me last week—do you know anyone from the U.S. who has made any money in China in real estate? Good question.
Rock and a Hard Place: In short, the world finds itself between a rock and a hard place—undergoing massive deleveraging without the ability of governments to stimulate growth. People don’t have the ability to buy as much and businesses won’t be able to sell as much or employ as many people at high wages. Standards of living decline as we all need to get much more efficient.
Political Fratricide: Few times in U.S. history have the American people needed its leaders and businesses to come together and forge meaningful solutions, calling for shared sacrifice in rebuilding the country and its industry. Now is certainly one of those times. But the political divide and huge schism between rich and poor—the bottom 40% of Americans have virtually no assets while the top 20% concentrate 84% of the country’s wealth—precipitates dysfunction and increasing disaffection. Will the 2012 election sort things out? Can we wait that long?
Cash looks good to me.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
