According to Beacon Economics’ new outlook for the U.S. economy, the economy will continue its steady expansion for the foreseeable future but may face a crisis of severe proportions by the end of the decade. A colossal Federal deficit and overvalued asset markets are driving excessively hot consumer spending, which may be supporting the nation’s current expansion but could be building into a serious future threat.
According to the new outlook:
- Elevated spending by American households is being driven by unusually high asset values and the $5 trillion in (stimulus) money injected into the economy during the pandemic.
- For the first time since the run-up to the 2007 Great Recession, the savings rate for U.S. households is below 4%.
- Today’s excess spending is being fueled by public, not private, sector borrowing.
- The nation’s current account deficit is twice what it was prior to the pandemic.
- The United States’ net asset position is in the worst deficit position in history.
“There is no version of the future in which these trends are sustainable,” said Christopher Thornberg, Founding Partner of Beacon Economics and the outlook’s author. “In any smaller economy the warning signs would already be flashing red to global asset markets, but the United States is too big and relatively safe for the danger to be acknowledged… yet.”
The new outlook lays the problem’s intensification squarely at the Federal Reserve’s feet and its policies throughout and after the pandemic. “These issues began long before the pandemic struck, but actions by the Fed in response to the crisis have made the nation’s long-run economic situation significantly worse,” said Thornberg. “Their decision to firehose an extreme amount of new money into the economy expanded U.S. money supply by 40% in an 18 month period – show me a nation that wouldn’t see a surge in spending and prices after such an aggressive increase.”
In the near term, the forecast finds:
- The United States will almost assuredly experience a steady pace of GDP growth in 2024, probably in the 2% to 2.5% (in the past year the nation’s economy has grown by 2.9% in real terms).
- While inflation jitters linger, price increases have decelerated from 7% to between 2% and 3% year-over-year, not enough for the Fed to cut rates repeatedly but enough to assuage investors and consumers.
- There has been a surge in consumer confidence and sentiment, the effects of which can be seen in the record high stock market indexes.
According to Thornberg, the U.S. economy is not currently at a crisis point but the day of reckoning could be as close as the end of this decade.
