The shortening of economic cycles

The United States has been in a period of growth since the second World War. However, after the dot-com bubble and the subprime mortgage crisis, combined with a vastly globalizing economic world, the United States may soon see its economic cycles shorten, and perhaps disappear altogether.

The emergence of the BRIC countries as world superpowers means that United States investments will be funneling towards those countries, and so well the funding from European and other Asian countries. What this will implies is that the US market cannot possibly grow fundamentally much more than it already has.

Most of its markets are completely saturated. The Internet was a major innovation, but unless another such innovation arises that allows for dramatically increased productivity, the United States economic system is not expected to break through its previous highs by much. (If it does, it will be a bubble, I can assure you of that).

Economically, most figures, especially unemployment, have not yet signified a complete return to a bullish economy, and it is my cynical view that it never will return back to its pre-recession levels. Right now unemployment may seem high, but it will eventually become the new norm. Infrastructural inefficiencies in the economy have grown over the years, as technology and the internet has cut down on many jobs previously performed by humans, and furthermore, increasing numbers of job-seekers are targeting a narrowing group of 'desirable' jobs. Meanwhile, highly technical jobs that require years of training and special degrees, are being consistently unfulfilled.

Furthermore, the Millenium generation grew up in a quite different environment than our predecessors. This generation spends less, views debt with distrust, and is much less likely to buy a home or marry.

What this leads to is fewer consumption, less demand within the market for luxury goods, and a slowing of the flow of money. The Baby Boomer generation was quite possibly the most spendthrift generation ever, due to the incredible rates of US growth, followed by the easing of monetary and fiscal policy, essentially allowing the baby boomers to spend in excess.

Therefore, as the baby boomers retire and younger generations become the dominant consumers of society, it is unlikely that the United States growth can outshoot its previous highs.

However, the good news is, the recessions are likely to become more and more bearable as a result. With conservative spending habits and an unlikeliness to take on too much debt, especially for new houses or cars, the next generation of consumers are unlikely to allow companies to expand aggressively and artificially inflate expectations. This means that the possibility of a such a ridiculous bubble as in the subprime mortgage crisis, will be reduced as well.

Therefore, reverting back to my main point, the US economy's business cycle seems likely to shorten in the future, and the amplitude of its oscillations will also decrease. I would make a very wide hypothesis right now and that is, I expect market fluctuations to reach a small, target range, on the Dow from around 11000 to 13000 by 2025, where the market is unlikely to break out of either range, completely smoothing out any market cycles.