Expectations for the US economy

[Car-Guy]

Translation: Gov't has a spending problem.

Yes, and so many poor choices for that spending, at that.

+1

 

[Out of Steam]

AND a revenue problem! Why do folks insist on ignoring the Elephant in the room?

You mean that running a government almost entirely on withheld wage taxes that leave the 10% of people with 70% of wealth essentially untouched is a problem?

https://www.statista.com/chart/19635/wealth-distribution-percentiles-in-the-us/

 

[Navigator]

^^ Goldbugs, Bitcoiners, Austrian Economics proponents and other Fed skeptics would say the plan is for the debt to be paid down, quietly, without raising taxes or cutting spending by doing it on the backs of savers, through “financial repression”: Print money and use the new inflated money supply and debased dollars to slowly pay off the older treasuries, which were issued back when dollars had a relatively higher purchasing power. Works great for the public sector but victimizes the private sector, including those of us holding dollars or assets denominated in dollars.

https://www.investopedia.com/terms/f/financial-repression.asp

Is financial repression a thing or just a conspiracy? I don’t know but it seems like there is an incentive for it as a workaround of today’s deadlocked policy world as the way to kick the can down the road and keep the debt balloon party going.

The treasury could reduce the debt by printing money, but another way of doing it is to simply let the economy grow, which decreases the debt/GDP ratio.

 

[Major Tom]

My old Japanese buddy I worked with at ARCO in 1985, who was interred on a farm in Idaho during WWII (as a young boy), told me that the best thing to do is:

"Keep your head down and keep thinning the cabbage" (many of you won't understand this)

For once, Google didn't help. I performed a search on the term, and ended up with a video titled, "How to Slice Cabbage with Martha Stewart"!

Then I thought about it, and all became clear. This reminds me that I have been meaning to visit the former camp at Manzanar, CA which is now a National Historic Site.

 

[MichaelB]

I think the US is in a great position and has a more positive future than any other large or developed country. Among the large and diverse economies it is by far the most productive, the pace of innovation has increased, we enjoy a very high standard of living. We have overcome great obstacles we met and prevailed over the enemies we have faced. Our greatest threats have been overcome. Innovators around the world look here as the preferred location to develop new and innovative ways of business.

There can be no doubt that our future has greater potential and is far more positive than other OECD countries and the entire developing world.

In my opinion the biggest challenge we face is productivity has slowed. This is by far the greatest obstacle to growing our economy and improving even more our standard of living.

I also think that because we have faced and overcome all our challenges we have grown lazy and complacent, and now look to improve our standard of living at the expense of others instead of hard work and more innovation.

 

[ER Eddie]

The US has approximately $31 trillion dollars in debt which is about $250,000 per taxpayer.

Jebus. I've been disturbed by deficit spending for decades, and it's getting exponentially worse. "Charge it! Let the kids worry about it!" Completely irresponsible.

Well, the good news is that we will all be dead soon. About six years ago, they told us the Earth will be destroyed. So we've got about four left.

Seriously, though, it used to make me mad. But then I decided to not worry about it, because there's nothing I can do about it. No point in worrying about something I can't control.

 

[pb4uski]

Translation: Gov't has a spending problem.

AND a revenue problem! Why do folks insist on ignoring the Elephant in the room?

Yes, given that by definition a deficit is revenue less expenses it has to be one, or the other, or both.

In another thread we have all been so thankful that tax rates today are so much lower than during our careers, so I can see some room for higher taxes... at a minimum let the Trump tax rates for individuals sunset as scheduled.

At the same time, spending is crazy.

One interesting tidbit listening to the Sunday morning shows is that Congress has not passed a budget in 12 years! I have a vague recollection that in Isreal if the Knesset fails to pass a budget then the body is dissolved and special elections are held. Interesting idea. If Congress fails to pass a budget within 60 days of the beginning of the fiscal year then that triggers a special election to elect a new Congress and all current members of Congress are ineligible to run but are required to serve until the new Congress is seated... I'd bet you my house that if something like that were in place that we would have a budget.

 

[Gumby]

Yes, and so many poor choices for that spending, at that.

One man's "waste, fraud and abuse" is another man's paycheck. People like it when government spends money on them or cuts their taxes, but they don't like it when that happens for those other, undeserving people. There's your problem in a nutshell.

In any event, I prefer to stick with worrying about things that directly affect me and that I can control. This isn't one of them.

 

[marko]

I'm glancing at your profile to try and understand where your pessimism is rooted. You live in a beautiful state (CO) and retired in 2020 (me too).

I live in the worst state (many say), I'm stage IV, and yet I wake up each day realizing that I've done quite well and continue to enjoy life with my family. Sure I read the doom-and-gloom, but I don't take a bath in it 24x7.

Restrictions in place about natural resources? On the east coast I've lived through oil shortage crisis, global weather shifts, water shortages, and so on. It's always something, right?

+1 I'm a bit surprised at the general negative tone on this (and a few other) threads. It seems to be a recent mood here; not one I remember from years past but Lord knows, things weren't all that rosy back 10 or 20 years ago either.

Considering that most here have above average incomes and retirements (or eventual retirement outcomes) as well as some of the rare perks that go along with those incomes (BTD), one would think there'd be a lot more optimism in general.

Just planning for retirement often requires a pragmatic, cold eye on the future and where we think we'll be in 10, 15 or 20 years from now. Without a belief in a decent future, who would dare retire early, invest in the stock market or just chuck it all and move to Costa Rica?

The world was never a perfect place. Life isn't fair. There will be rich and poor regardless.

Most folks here are in very rarefied company. "Financially Independent, Retired Early" right? We don't have to sweat making the rent or what to do if that old clunker dies; why so glum?!

 

[braumeister]

+1 I'm a bit surprised at the general negative tone on this (and a few other) threads. It seems to be a recent mood here; not one I remember from years past but Lord knows, things weren't all that rosy back 10 or 20 years ago either.

Some see the glass half full, others ...

 

[Markola]

We’re on post #61 and nothing from the OP since post #5. Maybe he ranted and left when not all of the responses conformed to his cultural lens. Oh well, he sparked a good discussion.

 

[Andre1969]

You mean that running a government almost entirely on withheld wage taxes that leave the 10% of people with 70% of wealth essentially untouched is a problem?

https://www.statista.com/chart/19635/wealth-distribution-percentiles-in-the-us/

Well, what percent of wealth SHOULD the top 10% (or whatever percent) have? I have never seen an answer to that. Just griping about how the top 10% or whatever have "too much".

Wealth does not come as a gift from the government. No, it is earned by the individual, through years, or decades even, of hard work, sacrifice, savings, wise investing, etc. Yeah, there's a handful of people who have lied, cheated, scammed, stolen, bribed, etc to get to the top, but that's not the vast majority of those top 10%ers.

 

[38Chevy454]

Class warfare is not a positive strategy.

 

[Popeye]

Well, what percent of wealth SHOULD the top 10% (or whatever percent) have? I have never seen an answer to that. Just griping about how the top 10% or whatever have "too much".

Wealth does not come as a gift from the government. No, it is earned by the individual, through years, or decades even, of hard work, sacrifice, savings, wise investing, etc. Yeah, there's a handful of people who have lied, cheated, scammed, stolen, bribed, etc to get to the top, but that's not the vast majority of those top 10%ers.

That’s analogous to asking how much tax is my fair share to pay. It’s a question that never gets answered! After enough drinks, it may be revealed they want 10% to always have only 10%, no matter their personal efforts.

 

[Car-Guy]

Wealth does not come as a gift from the government. No, it is earned by the individual, through years, or decades even, of hard work, sacrifice, savings, wise investing, etc. Yeah, there's a handful of people who have lied, cheated, scammed, stolen, bribed, etc to get to the top, but that's not the vast majority of those top 10%ers.

IMO

Yep! Almost never
Yep! Typically
Yep! True on both counts

 

[JoeWras]

It is pretty clear to me that the source of your information consumption has a lot to do with the outlook on the issue.

In one of the greatest twists of irony, I realized that not from this thread, but from a thread on Bogleheads. The owner of the site there has made a one time exception for people to riff on the debt situation, and people have very willingly posted their thoughts and supporting news and editorial articles for such thoughts.

It is basically the same thread as this going in the same direction, but ironically BH has more politics than here. Never thought I'd see that happen.

 

[pb4uski]

The United States of America has the financial wherewithal to service more than its debt outstanding, so there is no good reason to not increase the debt ceiling. It's just stupid politics.

You don't screw with full faith and credit to try to make political points. There are way too many really bad things that could happen.

 

[ShokWaveRider]

You don't screw with full faith and credit to try to make political points. There are way too many really bad things that could happen.

In a sane world, yes.

 

[Chuckanut]

I have a problem with the big Omnibus budget bills that are used so often today by our dysfunctional Congress. Too much crammed into one bill seems to upset the checks and balances that should be in play.

 

[LARS]

In discussions like this there are many opinions and no correct answers: just ranges of outcomes.

Thus, the single biggest thing one can do is focus on the expense side of the ledger.

How close you wish to sail to the wind (i.e. increasing expenses) is the question.

I’ve made peace with the fact that I will die with way too many assets, which is a function of being very conservative relative to spending.

I find this situation substantially better than contemplating ever being in a position of lacking assets to take care of life’s needs.

 

[target2019]

We’re on post #61 and nothing from the OP since post #5. Maybe he ranted and left when not all of the responses conformed to his cultural lens. Oh well, he sparked a good discussion.

It's a classic troll.

In spite of that the civil debate has produced some lucid posts so far.

 

[Rianne]

This a great discussion that led me to read the history of the U.S. Financial System formed around 1790. Yes, there was a financial crisis in 1792. We've been here before. Alexander Hamilton's direct quote:

He concluded: “It ought to be the policy of the government to raise the value of the stock to its true standard as fast as possible.”

https://www.imf.org/en/Publications...g of June,groundwork for the fledgling nation.

"The next order of business was to deal with the public debt, which led to initial controversy among key allies. The goal was to make sure that Treasury securities would come to be regarded as safe assets and a reliable source of financing for the federal government. Hamilton estimated the stock of public debt at $79 million (roughly 40 percent of GDP), of which $54 million was owed by the federal government and $25 million by the states. Even though that level does not appear high from today’s perspective and was much lower as a proportion of GDP than Great Britain’s at the time, debt service costs alone exceeded tax revenues."

 

[Andre1969]

I think I remember reading somewhere that the only time the US did not have any debt (not just an annual surplus, but no debt, period) was during Andrew Jackson's presidency. But, he did something else that screwed the economy, so it's not exactly looked back on with rose tinted glasses.

 

[GravitySucks]

I’m expecting the next 50 years to be close to the last 50.
Taking off the rose colored nostalgia glass:
70’s sucked for everyone.
80’s we’re not very good to people living off their labor but pretty good for investors once inflation was wrestled down.
90’s we’re pretty good for most. (Remember the Peace Dividend?)
Aughts were the lost decade.
10’s were mighty nice to most both investors and workers.
20’s ? I’m expecting a pretty sideways run, but who really knows.

 

[jimm100]

We’re on post #61 and nothing from the OP since post #5. Maybe he ranted and left when not all of the responses conformed to his cultural lens. Oh well, he sparked a good discussion.

Not the case. Unfortunately, I still work 50-60 hours per week, not retired, have kids and a wife, and have other time consuming commitments /activities in my life.

As I was reading through any of the responses, I wanted to quote some of them in order to reinforce, but that became too complex. A few people seemed to understand my objective while many said things like “I don’t worry about things I can’t control.” That seems like such ann obtuse statement when discussing investing and planning for the future. All investments are made based on factors an individual can’t control. The list of things that cannot be foreseen or controlled is literally endless and includes an asteroid hitting Earth. Nonetheless, every one of us has an AA based on what we expect the future holds.

As stated in my original post, I’m questioning whether the ”accepted wisdom” and extrapolation of past performance that the US economy will continue to grow at 5-6% is a reasonable predictor of future results. There are factors that have been true for the last 100 or so years that appear unlikely to continue such as population growth. Being unwilling to examine those factors because an individual can’t control them seems like an ostrich sticking its head in the sand and thinking if they don’t look at a threat, it won’t hurt them.

This statement from one of the comments aligns with my objective: “Just planning for retirement often requires a pragmatic, cold eye on the future and where we think we'll be in 10, 15 or 20 years from now.”

I have reached the age that I expected to either cut back to 50% working or retire completely. My assets have reached the amount that I expected to need to have in order to make that a reality at this point. But that was based on the “accepted wisdom“ of a 5 or 6% return above inflation for the next 30 years. And I have been counting on Medicare and Social Security to maintain my current standard of living. I cans and will cut back if necessary, but would prefer to enjoy the benefits that my decades of hard work have afforded others.

I am now taking a cold, hard look at what is reasonable to expect and plan on and that my welfare will be based on. I don’t want to run out or money at age 80 or 85 or 90 or 95. I’ve had multiple blood relatives make it to 95+ with various levels of cognition. I’m planning on living that long and needing a lot of care towards the end.

There are many, many points made in the previous posts that I’d like to comment on, but only have time for a few.

What I view as being realistic but others characterize as pessimistic likely has many sources; I’m sure having two depression-era parents was a factor. As is PE rsonally living through several financial crises that could have gone much worse.

Being in the IT industry shapes my thinking as well. When I referenced infrastructure issues earlier, I wasn’t just talking about roads and bridges but also energy, communications, and the potential consequences of outages (accidental or intentionally inflicted by bad actors). The US has either not had to deal with an attack or has thwarted them, we don’t know. But Russia shut down Estonia, the Chinese stole data I pretty much every federal employee. We have had many, many breeches — Edward Snowden. John Walker, Aldrich Ames, and on and on. These cause me great concern. Nothing any individual on this board can do about it, but if we keep hemorrhaging secrets (see also Hillary emails on a personal server, Trump boxes of classified documents as souvenirs, Biden boxes of classified documents at a “think tank” with mysterious funding sources), we are making it easy for adversaries to weaken our country. Those aren’t political statements, they are observable facts. But I digress from purely economic issues.

My concerns about the next generation have been shaped by the people I manage. It is so very common to hear “I’m not comfortable with that” or “that doesn’t sound interesting to me, what else can I do?” The younger people I’ve managed for the past 5-10 years expect work to be like a video game — I don’t like this one, I want a different one. Perhaps that has been a fluke and is not widespread. I hope so. I’m any event l, meritocracy is being questioned or even thrown out the window. That does not bode well for American exceptionalism.

IP theft is a HUGE problem for the US. Instead of US companies profiting from their own ingenuity, risk taking, and hard work, other countries chop is off at the kneecaps. The estimated annual cost is in tje hundreds of billions of dollars. That is lowering investment returns for everyone task g this board. Can we do anything about it individually? Not much. But it is a factor in portfolio returns — negatively if not addressed, positively of addressed.

The various “better than other countries” comments miss the point. As do many other comments, but I won’t list them all. They were just frustrating.

The helpful responses include discussion of continuing innovation, likely transition to new energy sources (though at inconceivable expense), the asset picture when I was focusing on only the debt side, etc.

I am trying to be realistic about what assets I will need to get from here to age 95. It is very complex and cannot be predicted with 100% confidence, but each of us has to have a plan that provides sufficient confidence that we pull the lever on the ejection seat and wave goodbye to paychecks. I’m at the point where I expected to do that, but my long list of concerns which seem valid to me is keeping me employed so I pay my bills and continue aggressive saving instead of joining the retired and going into distribution mode. Thus, I am seeking the wisdom of a very knowledgeable and experienced audience.

More feedback is welcome!