The recent US election saw both candidates pledging to work hard to solve the problem.
If both sides thought it could be fixed by government intervention then why should the public have any other expectation?
Consider the following graphs:
If these graphs, and that last one is particularly confronting, were broadcast in an advertisement on TV every night then there'd be panic in the streets.
And so there should be.
I think that things are going to get much worse before they begin to get better.
Here are my predictions.
The US has moved from being a creditor nation to debtor nation in a relatively short time. This change has been financed mainly by Asia and specifically Japan and China.
As Douglas V. Gnazzo points out:
One bread winner used to earn enough to support the entire family. This is no longer the case for most American households. It now takes two.
The savings of the American people is at all time lows, less than one half of one percent. Debt levels are at historic highs. Our government is running deficits of unprecedented proportions.
I do not see the Obama administration making the hard decisions needed to turn things around.
Can you see Harry Reid and Nancy Pelosi supporting corporate tax reductions, reduced government spending and no bail outs?
It won't happen and the consequences will be dire.
Unemployment in the US will top 10% before this is over and could reach as high as 15%. The stock market will fall to 4000-5000 though the real value will be even lower, as the government will try to print money to ease the pain thus guaranteeing a long downturn. Inflation will also top 10% meaning that stagflation will be the order of the day.
The stock market will not recover to 10,000 in real terms for at least 10 years.
So get ready, America, for some rough times. However, anyone who thinks that this spells the end of America's dominant influence in the world is in for some disappointment.
Socialist populism has been the scourge of Europe for decades and it has left them even less able to cope with a downturn than the US.
Huge pension liabilities to fund, a nanny state attitude, inflexible labour markets and over-regulation via the EU will all contribute to deep, deep problems and particularly in Western Europe.
Add in the difficulties of unfettered immigration of people who can make no contribution to the restoriation of Europe's fortunes and you have a recipe for societal disaster - a powderkeg waiting to go off.
The UK will increase its intrusion into people's lives, especially when the public blames migrants for the situation, which is inevitable, thus improving the country's chances of becoming the next fascist state in Europe (it's currently in a race with Germany).
It's more difficult to tell where unemployment will end up in Western Europe. I expect it will be a bit worse than the US in some countries and a bit better in others though things in Spain look spectacularly grim.
Key to the recovery of Western Europe will be whether its leaders implement the policies required to reduce greenhouse gas emissions to the levels they're targeting or whether they'll start listening to the real scientists who have been warning of the AGW scam for a few years now. I suspect the latter, though they'll fob it off on China and India refusing to cut emissions as the reason for taking no action.
The new democracies in Eastern Europe haven't had long enough to build up the problems that the West has so I expect them to experience a mild downturn.
Overall, Asia is in pretty good shape to ride out a downturn.
Japan runs a large budget surplus and has a high savings level so it's going to be able to get through reasonably well although companies such as Toyota, Honda, Mazda and Subaru etc are going to have a tough time due to the downturn in the world's largest car market - the US.
China also runs a large surplus and should be able to spend its reserves on cushioning the blow somewhat, though the Chinese leadership faces a larger issue of social advancement that will test their skills.
India is also in pretty good shape and, in fact, I expect Asia to do best over the next 4-5 years though Singapore might have a problem or two given its reliance on the financial sector for its income.
In summary for Asia: unemployment up, inflation up a bit, interest rates down a tad.
Unfortunately, our new Labor government is taking exactly the wrong steps to deal with the problem by using $10 billion from the surplus to try to pump-prime the economy.
Has never worked and won't this time.
This government is one that favours symbolism over hard decisions. Stuffing $10 billion into the economy is not a hard decision and has been greeted enthusiastically by Australians, as it comes before Christmas.
Unfortunately, all it does is kick the can down the road.
The only reason I can think of for the government to make such a poor decision is that they think the downturn in the rest of the world will be a relatively short one, measured in months rather than years.
At Christmas time next year they will know they are wrong and will head into an election year in a poor economic environment.
By 2010 unemployment will top 8%, inflation will top 8%, mortgage interest rates will fall well below 6%.
The Middle East will suffer significantly reduced income due to oil dropping below $30/barrel and maybe below $20. None of them are democracies so the people will suffer but hopefully the main sufferers will be those who are spending money supporting various terrorist networks around the world.
South America is completely stuffed. The place has been a basket case for decades but the problem is that the financial collapse that simply has to happen will leave the door open for an expansionist China to increase its influence in the Western hemisphere by helping bale out strategic states. Argentina will do what it has done in the past and default on its loans. Venezuela in a $30/barrel oil environment will not be able to prop up Cuba or Bolivia and will either become a full dictatorship or chuck Chavez out and start again. My money is on the madman at this point. Brazil has been a powerhouse in recent years and few regions in the world are not serviced by their terrific Embraer aircraft so it will be interesting to see how badly they are affected. It's hard to make predictions.
It's not so hard to make predictions about Africa. Massive corruption, starvation, violence, death, destruction. Situation normal.
Overall, the world is in bad shape. Reserve banks have increased the money supply recklessly, which has led to malinvestments that simply have to be corrected. Printing more money to chuck into the malinvestment fire is not going to work so things will get a lot worse before they get better.
Let's hope I am massively wrong.