Watch out for the wave
Man this thing is awesome. Check out the cool chart that I just found over on the Calculated Risk blog. I've been talking for a while that a lot of the growth that we've seen in the U.S. economy over the past two decades was fueled by leverage, an unsustainable lack of saving / increase in debt, and perhaps most of all by the largest generation ever...Baby Boomers...entering their peak spending years.
Watch the wave move on the graph above and wave goodbye to the largest generation of consumers ever. Consumer spending accounts for around 2/3 of the U.S. economy. At the very best, it will remain flat for years to come and it will likely contract. Where is the economic growth that everyone expects to return in 2010 and beyond going to come from? The very thing that served as a tailwind for the economy in the recent past will now act as a headwind.
I'm not predicting the end of the world, just an end to the 3%+ U.S. GDP growth that many have come to see as "normal." This is going to be a problem because many pension funds as well as the state and federal budgets are using assumptions about future growth rates that I believe are unrealistic. That means that we either have to stop promising so much to retirees, reduce government spending, or increase taxes in the future. Any significant future tax increases would serve as an additional drag on growth.
Kudos Calculated Risk for the cool chart.