Future of the US economy: Where is world economy headed?

July 15, 2009 - PRLog -- At http://www.comparebroker.com our analysts are always on their toes and they analyze the market and provide their opinion.

Many of our frequent readers have asked us if we can predict the future of US economy. Well to be honest, the answer is no one can. We are in a situation where we have never been before. The total money flow in the system is of historic proportions. However we did some research and have aggregated the opinions of noted economist in this article.

So what is in future as far as the US & World economy is concerned? If you ask this question to an economist, he/she will never be able to provide one answer. So the current hypothesis is that there is a 50% probability that this is a U shaped recession. Which means we are at the bottom which would remain anywhere between 6 months to 2 years. There is a 30% probability this is a W shaped recession. Meaning that the current period is the calm before the storm. If that is correct, it’s obviously advisable to pull money out of the market at the first sign of a downturn. We would see a massive fall in the economy in October. The recession would last for another 6 months; we would see recovery after that. The third scenario (saving the worst for the last) is an L shaped recession. This basically means that there would be massive stagflation and there would be no growth in US economy for next 10 years.

So what determines which one of 3 above outcomes to happen?

1.)    Oil prices: US economy needs oil prices in the range of 60-70 dollars for the economy to recover. If they go above $100 all small industries would perish since the raw material cost would go up. If it falls below $50, new research in alternative energy would not occur. Hence no new growth projects will be seen.

2.)    What happens to excess money flow: A big reason why the economy has not gone further down in last 3 months is the massive interference by the governments of all countries. Economists know that pumping money into recession is a must. But no one has a clue of when and how to pull it back. If the money is not pulled back at right time, it can lead to serious stagflation problems.

3.)    Innovation: In the end every economy has gown due to some innovation or other. In the prehistoric times it was fire and agriculture. Arabs grew due to trade. Europeans grew due to internal combustion engine. Americans grew due to Assembly lines and efficient manufacturing. There are several industries which have the capability of growth biotechnology, smart phones, alternative energy, and green jobs. It would be seen which among these is able to drive the next era of growth.

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