Danger ahead: former treasury secretary's gloomy market prediction.

Despite rosy predictions for the state of New York's real estate market at CB Richard Ellis' annual forecast breakfast, the company's guest speaker, former Treasury Secretary Robert E. Rubin, warned brokers that the national economy is facing very serious challenges in the years ahead.

According to Rubin, issues such as the growing budget deficit, competition from emerging overseas markets and a weakening dollar are being ignored by many investors, possibly resulting in some badly thought-out deals.

Speaking after CBRE executives John Powers and Robert Alexander, who proclaimed that "New York has come back [from recession] faster than the rest of the country," Rubin noted that we are facing "a time of special uncertainty and complexity, a time that poses a tremendous challenge."

Rubin said that in addition to an unstable geopolitical situation, the United States is facing at least a $3 trillion budget deficit for the next 10 years, a problem that is going to be made worse when a large number of baby boomers will retire in the next decade.

U.S. companies are also facing an increasingly competitive threat from new enterprises in places such as India and China, who have a large pool of highly educated workers and a commitment to improving their economic standing.

"These factors, for the most part, are ignored in economic forecasts," Rubin said. "It seems to me that the range of possible outcomes for investors is much wider than usual and the approach that most of them take is very dangerous. Markets can deviate substantially from objective judgment about the future."

This means that it is possible for several negative economic factors to coincide and force the country into one of the worst depressions in its history--sparked, for example, by a very high increase in interest rates and a sharp decline in currency. According to Rubin, the U.S. is overly dependent on the policies of central banks in such countries as China and Japan and is in too much debt for its long-term economic health.

"The privatization of Social Security would increase the federal deficit by trillions in the first 40 years of its operation. In addition, a large portion of our budget is going to be dedicated to defense," he noted. "Meanwhile, tax revenues are only 60% of the GDP right now, the lowest level since the 1960's. It's going to take a major efforts to [overcome this]."

Rubin expressed hope that the country will be able to withstand such challenges because of its flexibility and openness to change. But he also pointed out that it will take effort on the part of both politicians and investors.

"I think we will go through a very difficult adjustment," he said.