NEW YORK (AP) – If the economy looks like it’s going downhill now, just wait.

Government data released Friday showed the economy is slowing down much more dramatically than economists expected. But the current economic woes will pale in comparison to the big storm that’s coming, predicts Harry S. Dent Jr. in his book “The Great Depression Ahead.”

“If you thought 2008 was scary, 2010 to 2012 will bring on the greatest economic and banking crisis since the early 1930s,” Dent writes, forecasting that real estate, stocks and commodities will all fall much further than they have already. The founder of HS Dent, an economic research and forecasting company in Tampa, Fla., Dent maintains the sharpest part of the decline will last at least two years. He sees the Dow Jones industrial average falling as low as 3,800, or just over half its current value.

The key to Dent’s predictions are the various historical cycles his research has identified. The centerpiece is a 40-year demographic cycle that he says is winding down because baby boomers have started to drastically reduce their spending as they approach retirement. This change is the major factor that will drive a steep economic downturn. But it’s not an isolated phenomenon, it’s overlapped by other short-term, intermediate and long-term cycles that show patterns in stock market corrections, technological advances and commodity price changes, among other economic factors.

Dent acknowledges in the book that he has made wrong calls in the past, including a 1993 prediction that the Dow Jones industrial average would soar to between 32,000 and 40,000 in 2008. Of course that’s not what happened. After further research he cut that prediction in half in 2006, and then cut it again in early 2007.

While his title may suggest all gloom and doom, Dent offers readers strategies that investors can use to profit during what he refers to as “The Great Winter,” as the economy sinks in the next few years. And he describes the political and social impacts of the economic collapse he expects, including gains for the middle class both in the U.S. and in emerging countries, at the expense of those now on top.

The Associated Press talked with Dent about the predictions behind “The Great Depression Ahead” and the methods used to make those forecasts.

Q. Many critics have noted it’s easy to pick out specifics for any given time and miscues in your predictions about how the stock markets are going to move or what will happen to the price of oil. Given that, how much confidence can readers have in your forecasts?

A. What our firm does that nobody, and I mean nobody, nowhere does, is predict trends decades in advance. When it comes to short term predictions, you know how much I’m right? Sixty, maybe 70 percent of the time. Our main message in this book is this is not just another recession, this is a long-term peak in stocks, like 1929, 1968, and 1989-90 in Japan. This one’s not going to be over in a year. We look at demographics, and 90 million baby boomers are switching from being spenders to savers. Politicians think they’re going to just fix the banking crisis, but what they really have is a long-term demographic slide. Government is not going to do the right thing, because you can’t do anything about this.

Q. Even though they’re aging, baby boomers are expected to live longer and be more active than prior generations. Why won’t that help boost the economy?

A. Because of the spending cycle. People spend dramatically more money up to age 50, and then they spend less for the rest of their lives. The baby boomers are more active in retirement and they’ll spend more in retirement. But they’ll spend less than they have up to now, because their kids are gone and most of their durable goods are bought and paid for. Even if these people are more active, they may be spending money on vacations and rock climbing or whatever, but they’re not spending money on houses and cars and the other things that stimulate the economy.

Q. You say there will be no major technological innovations to spark the economy in the next 15 years or so. Some people point to sustainable or “green” technologies being implemented now in energy and other areas to refute that. How do you back up your view?

A. We do think there are exciting new technologies that are being developed – nanotechnologies, biotech and robotics, for example. But we focus more on technology cycles, which come in waves. There is always innovation. But it’s when these technologies hit critical mass, like the Internet in 1994 to 1996, that they impact the broader economy. There are a lot of things emerging now, but you’ve got to remember, PCs emerged in the 1970s, but they didn’t affect consumers that much until the 1990s.

We had a big cluster of things in the ’60s and ’70s that didn’t emerge until the 1990s. Technologies are extremely important and innovation is still occurring. The iPhone’s going to get better, broadband is going to get better, but you don’t get the same impact from those improvements that you do from the adoption of computers and cell phones. Just like generational things, they ebb and flow. The next generation will bring nanotech and alternative energies and so forth, but we won’t see the impact of that for decades.

AP-ES-02-27-09 1501EST


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