U.S. headed for 'Day of Reckoning'..Are We Living Beyond our Means??

An intersting take on where we (The USA) are heading....

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The United States is headed for a "day of reckoning" as oil prices and the budget deficit remain high, consumers keep spending and not saving, wages remain stagnant, housing prices rise and the working population ages, warned Robert Reich, former Department of Labor secretary in the Clinton administration.

"The American economy is going to have to inevitably make a structural adjustment (with regard to lack of consumer savings and the budget deficit), or the entire world is going to suffer," Reich, an economist who is currently a professor at the Goldman School of Public Policy at the University of California at Berkeley, said during a keynote at the IDC Directions conference here.

While the country is recovering from a recession in 2001 with decent overall economic growth and a return of information technology business, there are three storm clouds on the horizon in the next year or two, he said. They are high oil prices, a $400 billion U.S. budget deficit, and record high levels of consumer spending and record low levels of consumer savings.

Oil prices will not drop, Reich predicted, because India and China "are growing so fast that energy demands are exceeding the world's ability to supply enough oil to meet demand." Oil prices "will stay high--it's like a tax on the whole economy."

Meanwhile, Americans are living beyond their means. "We're going into hock to the rest of the world," at the rate of about $2 billion a day, mostly to Asia, he said.

Interest rates will go up and the value of the dollar, relative to other currencies, "is heading south," Reich said. "Imbalances in the global economy and borrowing from abroad, that can't go on forever. There will be a day of reckoning."

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