“It’s tough to make predictions, especially about the future.” – Yogi Berra
How to Make the Most of The Year of the Snake
With 2012 behind us, we turn our attention to the promises and challenges of the coming year. According to the Chinese Zodiac, 2013 is the Year of the Snake, specifically the year of the water snake. Here’s how you can maximize its potential…
According to one Chinese Zodiac website, “This is a year of the water Snake, which means all things will be possible. Prioritizing savings and frugality is essential. To reap the best rewards this year, manage your spending carefully and leverage your talents effectively.”
This advice holds true regardless of the year. Although the Year of the Snake doesn’t officially kick off until February 10, adopting a frugal mindset and saving money is wise to start embracing today. After all, prudent saving and spending are foundational pillars for building wealth.
To put it simply, the two most reliable strategies for wealth accumulation are: (1) spend less than you earn, and (2) earn more than you spend. These principles work in tandem. If you can align your life to achieve both, you’ll be wealthier day by day and year by year. By doing so, you will also surpass the 43 percent of American families who live beyond their means annually.
That, in essence, is how to thrive in the Year of the Snake. But what other developments lie ahead this year…?
More Big Government and Antigrowth Policies
To begin with, expect an expansion of government influence. While we may not be fond of it, there’s little that can be done to halt this trend.
Sadly, 2013 is projected to see the adoption of the Value Added Tax (VAT) in the United States, moving us closer to a European-style taxation system. If you’re unfamiliar with the VAT, you’ll soon find it’s akin to a federal sales tax collected at various points in the supply chain. This means more expenses for you as the costs of government services, like healthcare, are offset.
In addition to rising income, payroll, and capital gains taxes, this year will introduce a carbon tax targeting the use of fossil fuels—oil, coal, and natural gas. While it may seem absurd, the idea is that taxing these fuels will contribute to environmental preservation. Combining environmental ambition with the drive for more government revenue ensures that Congress will act swiftly.
These new tax initiatives arise from the government’s inability to meet its financial commitments. For instance, Social Security disbursed $773 billion in fiscal year 2012, yet only $725 billion was collected, resulting in a $48 billion deficit that’s been borrowed from the future.
The weight of entitlements has become increasingly burdensome. As demonstrated by the fiscal challenges faced, Congress lacks the resolve to cut spending. Thus, taxes will be raised, and more schemes to extract money from citizens will emerge. Brace yourselves for both the VAT and the carbon tax!
Regrettably, these antigrowth measures will be put into place just as the U.S. economy transitions out of the calm of the storm…
Exiting the Eye of the Hurricane
This might surprise the millions still struggling with unemployment: the Great Recession officially ended in June 2009. This means the U.S. economy has technically been in recovery for over three years.
Perhaps this statement holds some validity—stimulus measures and monetary easing have pushed GDP into positive territory. However, this recovery hasn’t translated to an improved quality of life for most citizens. For many, it’s been a battle to maintain the status quo.
Essentially, the economy has enjoyed a brief respite from crippling debt, largely sustained by extensive spending. The burden of excessive debt remains an obstacle we cannot surmount without significant write-offs and restructuring—essentially leading to widespread bankruptcies and unemployment.
These corrections should have occurred following the crises of 2002 and 2008 if the government had not intervened. Instead, aggressive monetary policies exacerbated misallocated resources, worsening our current predicament. In effect, the Federal Reserve and Treasury attempted to combat the debt problem with even more debt, inflating the already-burdened debt bubble.
In recent years, although growth has stagnated, the economy has remained within the relatively quiet eye of a financial storm. This year, it will re-enter turbulent conditions that will reveal the heightened problems that originated from the 2008 crisis.
Unemployment, already elevated, is expected to rise further as food stamp dependency and unemployment claims hit new records. These trends will surge government debt—an ironic situation given that the debt ceiling was breached at the start of the New Year. Quite the beginning to a new year!
Other 2013 Predictions
In this context, the overall stock market is likely to decline. Historically, this is what happens during a recession, and given that the market has risen for the past three years, a downturn seems inevitable.
Gold is also expected to see a decrease in value in 2013 after twelve years of continuous appreciation. However, if you are not trading actively, it’s advisable not to sell your gold holdings.
Though gold may temporarily decline, it presents a crucial opportunity to enter the market if you haven’t already. The inflationary pressures from the Fed’s monetary policies will likely push gold prices up in the long run, but do not be surprised by an interim dip due to the recession.
Conversely, food prices will continue to rise throughout the year due to the severe drought and low crop yields experienced in recent times. Even a recession will not alleviate high food costs.
On the other hand, oil prices are projected to decrease this year, largely due to the combination of recessionary effects and increased U.S. domestic production from fracking. This should offer some respite at the gas station unless escalated geopolitical tensions arise with Iran, which we do not expect to result in war in 2013.
This year will not witness the bursting of the great Treasury bond bubble; asset price bubbles often endure longer than anticipated. When recession strikes, investors typically seek the safety of U.S. Treasuries, keeping yields on the 10-Year Note below 2 percent. Nevertheless, future rounds of fiscal and monetary stimulus post-recession may undermine the dollar and government debt, but the significant bond collapse is more likely a 2014 concern.
Lastly, 2013 marks a pivotal moment for the millennial generation. Having graduated during the worst economic downturn in 70 years and often moving back in with their parents, this year they will shift gears. Instead of pursuing elusive corporate roles or settling for subpar jobs, millennials will channel their creativity and grit into entrepreneurial ventures.
Despite the setbacks from which they will learn, and being labeled the first generation to face diminished living standards compared to their parents, millennials are poised to gain greater independence and wealth than previous generations. They will also pave the way for significant sociopolitical shifts towards smaller government, self-reliance, and reduced dependency on social welfare.
Stay tuned for these developments.
Wishing you a Happy New Year!
Sincerely,
MN Gordon
for Economic Prism
Return from Exiting the Eye of the Hurricane and Other 2013 Predictions to Economic Prism
