Few would argue we face significant problems in our country. The recent headlines describing one financial crisis after another have sent shock waves throughout our economy. While many feel helpless to do anything other than watch events unfold, I find that having a perspective of where we are, and more importantly, where me may be headed, can help us in making appropriate decisions.

A series of events began to unfold in the 1990's that ultimately led to the global financial turmoil we have just witnessed – particularly over the past year. While some are eager to blame politicians, corporate greed, and irresponsible consumers, there are many other factors that have led us to this point.

An important question to ask now is, “what's next?” and “what should I do about it?” Lou Gerstner, former CEO of IBM was once quoted as having said,

"You don't get points for predicting rain . You get points for building arks."

I believe an economic ‘perfect storm' may be approaching us in coming years. If this turns out to be true, then this is our opportunity to get our own ‘arks' in order to enable us to weather those times as they come.

Let's start with some context to the problems as I see them.

Harry Dent is a Harvard educated economist and forecaster that has correctly predicted numerous economic trends over the past couple of decades. The research of H.S. Dent tells us that between the years of 1946 and 1964, 76 million babies were born to US citizens – we all know them as the “ Baby Boomers ”. If you include immigrants born during that time that later came to the US , the estimated number exceeds 121 million. Births rates for the baby Boom generation peaked in 1961, and then began to decline.

We know some interesting things about these people as they tend to be pretty predictable in their spending as a group. The Consumer Expenditure Survey conducted by the U.S. government since 1980 has shown spending to be fairly consistent as the majority of our population gets married and has children. A review of the survey shows an ‘average' life looks like this:

We enter the workforce on average at age 19-22
We marry at 26
We have our first child at 28
We purchase our first home around age 33
We purchase our largest home at about 42-44
Household spending peaks between ages 45 and 50 (48 on average), driven primarily by our children leaving the nest
Income and savings increase in our 50's as we prepare for retirement
Lifetime net worth peaks about age 63, retirement begins at 64
Spending continues to decrease steadily for the remainder of the lifecycle.

( Source: Consumer Expenditure Survey, 2002, Bureau of Economic Analysis)

What this information tells us is that we have been steadily benefitting from the increased spending of a very large group of people for the last 20 plus years. What that also says, is that we may be on the verge of that trend shifting as the majority of baby boomers change from a spending mindset to a savings mindset in preparation for retirement (Take the peak in births in 1961 and add 48 years to adjust for peak spending = 2009). Savings is a great thing on a household or individual basis. However, when a population starts to spend less, it has lasting negative consequences on an economy.

Put another way, we have been benefitting from an economic ‘tailwind' of almost uninterrupted increased spending in the past. We just received news this week that consumer spending in 3rd quarter 2008 decreased for the first time since 1991 (Source: Department of Labor). We face the prospect of a significant ‘headwind' in the future if that spending continues to drop. Demographic research suggests that overall spending is about to do just that, and may not increase again until the 2020's.

The impact of a sustained slowing in spending cannot be underestimated. 70% of our economy's spending can be attributed to consumers. Government and business spending constitute the remainder. (Source: U.S. Department of Commerce, Bureau of Economic Analysis). Japan faced over a decade of slowed consumer spending starting in the early 1990's. Their Nikkei index lost over 80% of its value during that time (The Nikkei is a stock market index for the Tokyo Stock Exchange and is used as the major indicator for the Japanese economy, similar to the Dow Jones Industrial Average).

The prospect of slowed spending in the future is one ‘front' of this perfect economic storm that I believe approaches. Another front is the impact of decades of over-spending by our government. The total US debt has risen from about 6 trillion to over 9 trillion just since the year 2000 (Source: US National Debt Clock www.brillig.com/debt_clock). While the 2002 Bush tax cuts, Medicare part D, and the war on terror have certainly contributed to that debt, there have been widespread increases in spending in our government over the past decades.

Much of the problem lies in not just what is debt owed currently, but in looking at the unfunded promises we have made to our citizens in the future. Earlier this year, a documentary entitled ‘I.O.U.S.A' hit theatres with notables such as Warren Buffet, Alan Greenspan and former Comptroller General of the US government David Walker describing the problems as they see them. I encourage you to find a showing of this film in your own city. In short, we cannot fulfill the promises we have made with out significant change. According to USA Today, over 60% of our entire federal budget is currently used for ‘entitlement spending' (Social Security, Medicare, Medicaid, Federal Employee retiree benefits).

So how do we fix these problems? Our government has 4 tools at their disposal to help address these problems:

#3 seems to have been the recent popular favorite, while #1… not so much. Our highest marginal tax rates are currently near 50 year lows. I expect taxes to increase dramatically in the next decade to attempt to hedge the shortfall. David Walker believes taxes would need to nearly double today to address the current problems effectively.

What can we take away as individuals and families from this information?

First, we are told that if we are prepared, we need not fear.

We are warned and have been warned to get our ‘year's supply' ready. Make sure this includes food, fuel, and as much cash as can be reasonably set aside.

Second, this is the time to cut unnecessary spending.

President Hinckley spoke about how ‘yesterday's luxuries have become today's necessities.' Sit down as families and discuss how you would respond if wages decreased, or employment was unexpectedly lost. As you plan for holiday spending this year, consider carefully what is appropriate for your needs.

Third, review your investment portfolios.

Many have increased the risk levels in retirement accounts after years of high returns. You may find these risk levels are no longer appropriate. Look for investment strategies that can help protect your expected income in the future. If we enter a sustained downturn in our economy, investments that provide a predictable income stream could provide the best protection. Remember, you need to plan for increasing income to keep up with inflation or risk eroding your purchasing power.

Fourth, review your tax structure.

Far too few are taking advantage of benefits offered by Roth IRA's and Roth 401(k)'s. Retirement plan and tax expert Ed Slott, CPA, calls the Roth IRA, “the best present politicians ever gave the U.S. taxpayer.” Look for opportunities to pay taxes at lower rates today to insulate yourself from potential increases in the future. Consult a tax advisor regarding your specific situation.

Fifth, look for any opportunity to reduce debt.

If we face a time of rising unemployment and lower real wages, debt becomes more expensive every month. Make every effort to accelerate debt payments, starting with the highest interest debts.

We have so much to be thankful for, and this time of year reminds us of the abundance we are blessed with in our lives. Let us be good stewards of our blessings so that we may better serve Him.

Thom Hall is a registered representative of and offers securities through Securities America, Inc., member FINRA/SIPC. Advisory services are offered through Securities America Advisors, Inc. Financial Strategies institute and Securities America are not affiliated