Honestly, who knows?  But it’s still interesting to hear what the “experts” are saying and to see how their predictions pan out. 

The prognosticators over at The Wall Street Journal have put together their economic outlook for 2011 and beyond, an interesting way to begin the New Year.  The good news is most experts have high expectations for economic growth in 2011; the bad news is a cloud of uncertainty still hangs over the economy, and the outlook may now be hazier than ever.

Economic growth.  The recent tax-cut bill is expected to pump another $850 billion of stimulus back into the economy, raising the prospect for decent economic growth in 2011.  The bad news is that the government is printing money and piling up debt.

Inflation.  Over at the WSJ, they’re not worried about inflation.  But they are worried that the government may worry about it, and “turn off the money spigot” too soon.  As former Fed Chairman William McChesney Martin once put it, “they’ll take away the punch bowl just as the party gets going.”

Employment.  Experts predict unemployment rates should start falling, but slower than most would like.

Taxes.  While it’s true the Piper must eventually be paid, the WSJ isn’t expecting any significant tax hikes this year – or next.  They don’t think either party is in the mood to tackle that elephant in the room right now.

So, what do all of these predictions mean to you?  For solid and simple advice, the WSJ offers a few tips:

  • Pay down your debt, or lock in interest rates, early in the year, so you don’t take a hit when interest rates start to rise.
  • The lower taxes in 2011 and 2012 won’t last so enjoy them by shifting any possible income into these years, and this is especially the case for higher earners.  As far as IRAs, switch over to a Roth IRA so you can pay the taxes now when they are known to be low, rather than in the future when they may be higher.
  • Diversify your interests abroad, especially in developing markets like China, and thereby experience the faster growth there and shield yourself from the falling dollar here.
  • Prepare for the unknown.  If the last few years have taught us anything, it’s that no one can predict with certainty what’s coming next.

These tips make sense in almost any economic climate.  Just stick to your personal priorities and avoid the temptation to follow the example of Congress when it comes to your personal finances.

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