5 buys, 5 sells for no-growth decade

A slow-growth decade is already raging. You feel it everywhere. And it's going to get worse. A recession is virtually certain for 2012, an angry, volatile, presidential-election year. It may morph into a 1930s-style depression.

That's the clear message we get from Gary Shilling, one of the world's foremost economic forecasters, Forbes columnist and the author of "The Age of Deleveraging."

The American economy is facing a huge shortfall in the 2011-2020 decade. We need real gross domestic product growth of at least 3.3% just to keep unemployment stable. But that's impossible, says Shilling; America will be lucky to get an average 2% real growth.

The United States faces the possibility of 10 years of slow, even less than zero growth. Plus high-stress, chronic unemployment. Plus accelerating global unrest, regional conflicts, increasing Pentagon budgets.

In his latest newsletter, Shilling sets out scenarios for 2012 and the years ahead that feel more like a summer blockbuster that's come alive with a vengeance.

Yes, a 2012 recession is coming, says Shilling, because "much of the excesses and financial leverage built up in past decades, especially in the financial sector globally and among U.S. consumers, remain to be worked off."

As a result of the blunders by our fiscal and monetary leaders, the "private and public deleveraging will take years to complete and keep economic growth subdued," says Shilling. "Recessions will be deeper and more frequent."

So which trigger will plunge America into a recession and take down the global economy? "A further 20% drop in house prices because of the depressing effect of 2 million to 2.5 million excess inventories" is setting up a crisis, Shilling says.

Remember how Wall Street's greed grew for several years, then triggered the 2008 meltdown? That disaster hasn't ended. Why? Because another 20% drop in housing "would push underwater mortgages from 23% to 40% of the total, seriously depressing consumer spending and wreaking havoc among mortgages and related securities," Shilling says.

10 reasons for a slow-growth decade

We are in a virtual minefield of triggers merging into a perfect storm. Another big "spike in energy prices due to Middle East trouble could also drive a weak U.S. economy into recession," Shilling says, and "force a Washington response in the 2012 election year."

While Fed Chairman Ben Bernanke has ruled out QE3, more fiscal stimulus is likely, since even Tea Party folks like to get re-elected.

Shilling offers nine reasons investors had better prepare for an era of slow global growth extending from next year's election to 2020. We rounded out his list by adding a 10th reason.

• Consumers are shifting from a 25-year borrowing-and-spending binge to a saving spree. This trend will spread across the globe. Why? Because American consumers will import less from developed and emerging nations that are dependent on exports for economic growth.
• Financial deleveraging is already reversing economic trends that financed much of the world's growth in recent years.
• Developed countries in Europe and elsewhere are moving toward fiscal restraint.
• Throughout the world, increased government regulations and involvement in economies will reduce innovation and increase economic inefficiencies.
• Nationalism and protectionism will slow, or possibly eliminate, economic growth throughout the world.
• Declining commodity prices will erode consumer spending in commodity-producing nations.
• Excessive housing inventory and reduced interest from investors will continue to suppress an already weak U.S. residential real-estate market.
• Deflation will suppress spending as buyers wait for lower prices and negotiate harder.
• State and local governments across the United States are losing revenues and cutting services.
• But perhaps most of all, and certainly affecting everything, the extreme, accelerating irrationality that's driving our angry political wars will undermine an already stagnant economy, until a 1930s-style depression takes down the American economy.