Expectations for the US economy

[jimm100]

There are innumerable charts and graphs that show the US economy and stock market have grown consistently throughout their history. The discussions about reasonable withdrawal rates ranging from 3-5% are built on the premise that past results will guarantee future returns over the long term. What if that’s not the case?

A growing economy is defined as growing GDP. What factors have contributed to the growth of GDP?

Throughout its history, the population of the US has grown. A growing population results in more workers and more consumers. That appears to be slowing or stopping. Immigration could help, but there is no consensus by politicians that we could or should increase legal immigration. And the new generation of workers seems to have a different work ethic that prioritizes low effort and comfort.

Use of natural resources has contributed significantly to US growth. But new laws and regulations are putting up huge barriers.

Our infrastructure has been an advantage, but is old and needs extensive and expensive upgrades.

Increasing productivity has also contributed. The digital transformation and AI are promising sources of productivity and may help with growth.

Innovation and risk taking are being punished through wealth redistribution in the name of “equity”.

The US has approximately $31 trillion dollars in debt which is about $250,000 per taxpayer. If half of those taxpayers can afford to pay more, that’s actually $500k per taxpayer. If we balance the budget immediately (today) and raise taxes about $1500 per month on the top half of the taxpayers, it will take 30 years at 0% interest to pay off the debt. And if we balance the budget, that removes a trillion or two trillion of stimulus. Raising taxes by $1500 per month would decrease consumption dramatically. The Great Depression would look like the Roaring 20s. Perhaps we could sell Hawaii to Japan for a trillion or two? And sell Alaska to China or other country for a trillion? Perhaps sell a few National Parks? I’m kind of joking but kind of not. I see no way out of our debt and the current administration and ruling party have declared “we won’t negotiate “. What?!? Isn’t that their JOB as our REPRESENTATIVES?!? I could go on about my thoughts on our political situation, but that’s not the point of my post.

I’m trying to be realistic about the trajectory of our economy for purposes of planning my financial needs in retirement. I’m concerned the US economy will not continue on the same trajectory of the last 20, 30, 50 or more years. I’m genuinely concerned that Medicare and Social Security won’t be there for me for the next 30-40 years that I expect to live.

Am I missing something? Is there a silver lining that I’m not seeing and the US will continue its nearly constant growth?

 

[Koolau]

There are innumerable charts and graphs that show the US economy and stock market have grown consistently throughout their history. The discussions about reasonable withdrawal rates ranging from 3-5% are built on the premise that past results will guarantee future returns over the long term. Not what if that’s not the case?

A growing economy requires growing GDP. What factors have contributed to the growth?

Throughout its history, the population of the US has grown. A growing population results in more workers and more consumers. That appears to be slowing or stopping. Immigration could help, but there is no consensus by politicians that we could or should increase legal immigration.

Use of natural resources has contributed significantly to US growth. But new laws regulations are putting up huge barriers.

Increasing productivity has also contributed. AI is a promising source of productivity and may help with growth.

Innovation and risk taking are being punished through wealth redistribution in the name of “equity”.

The US has approximately $31 trillion dollars in debt, that’s about $250,000 per taxpayer. If half of those taxpayers can afford to pay more. That’s actually $500k per taxpayer. If we balance the budget immediately (today) and raise taxes about $1500 per month on the top half of the taxpayers, it will take 30 years at 0% interest to pay off the debt. And if we balance the budget, that removes a trillion or two trillion of stimulus. Raising taxes by $1500 per month would decrease consumption dramatically. The Great Depression would look like the Roaring 20s. Perhaps we could sell Hawaii to Japan for a trillion or two? And sell Alaska to China or other country for a trillion? I’m kind of joking but kind of not. I see no way out of our debt and the current administration and ruling party have declared “we won’t negotiate “. What?!? Isn’t that their JOB as our REPRESENTATIVES?!? I could go on about my thoughts on our political situation, but that’s not the point of my post.

I’m trying to be realistic about the trajectory of our economy for purposes of planning my financial needs in retirement. I’m concerned the US will not continue on the same trajectory of the last 20, 30, 50 or more years. I’m genuinely concerned that Medicare and Social Security won’t be there for me for the next 30-40 years that I expect to live.

Am I missing something? Is there a silver lining that I’m not seeing and the US will continue its nearly constant growth?

The only silver lining I see is that I'm 76 and probably will not live to see the worst of the issues created by such huge debt and refusal to address it. Who said getting old is all bad?

 

[plex]

Pretty sure this will get locked.

 

[Calico]

 

[jimm100]

Pretty sure this will get locked.

Locked? Are you saying a moderator would prevent discussion? Why?

It’s a legitimate topic of discussion for people planning for or already in retirement. We all need to think about whether the US economy will continue to grow and the stock market will continue to provide returns greater than inflation.

I see a lot of headwinds. Others will have different perspectives. It’s a worthy topic.

Please let me know what line you think I’ve crossed in my post.

I’m not an economist, so I’m hoping I’m missing something. Would love to hear that I am in fact missing something and all will be well.

 

[Montecfo]

The steps necessary to solve the debt and demographic problems are unlikely to be undertaken. That is, until voters insist we balance the budget and reform immigration.

It seems like the solution lies within our hands.

But if voters continue to be uninterested (or distracted by shiny objects) the current trajectory will continue.

 

[Car-Guy]

The only silver lining I see is that I'm 76 and probably will not live to see the worst of the issues created by such huge debt and refusal to address it. Who said getting old is all bad?

I see it that way too and I'm just a few years behind you. Not much I can do about it anyway other than play the hand that I'm dealt. I just hope the measly few mil I have in the bank will be enough for the next 10 (~probably) to 15 years (very unlikely). After that, if needed, I can sell off the house/land/cars/etc and by then I'll surly be done.

 

[pb4uski]

I think one thing that the OP is missing is that it isn't realistic to expect to fully pay off the debt. Very few major countries in the world are debt free. Most major corporations perpetually have debt and we don't consider that to be bad or debilitating. The problem arises for both companies and governments when there is excessive debt.

While the debt of the US is higher than I would like to see, having a debt limit just to begin with is crazy... the functional equivalent of someone refusing to pay the credit card company the amount that their balance from charges for spending exceeds their credit limit. While I think a debt limit is foolish, if you are going to have one then have it be a constraint on appropriations... no appropriations can be made if it would cause the debt to exceed the debt limit... that would end up stopping someone's favorite bill like the farm bill or military funding or something like that in its tracks.

But whatever they do, don't screw with the full faith and credit of the United States of America... if the current or prior Congresses approved spending and it resulted in debt then pay the bill. It would be a different thing if the US was unable to pay the bill, the problem is that some elements are refusing to pay the bill. Lunacy.

Besides, if the US had no debt, what would we invest in for our retirement?

 

[jimm100]

While the US debt is a major concern, there are many other points in my original post that also contribute to my concern that the economy may not grow and the stock market may not rise and my retirement assets may not survive even a 1-2% withdrawal rate.

Are others concerned about the slowing and potentially reversing population growth of the US? The restrictions being place in using natural resources? The culture change from hard work to achieve the American dream to path of least resistance?

I’m also concerned about wars, espionage, IP theft, and more.

For those counting on a 3-5% above inflation return on their portfolio, where do you see that coming from?

 

[Koolau]

I think one thing that the OP is missing is that it isn't realistic to expect to fully pay off the debt. Very few major countries in the world are debt free. Most major corporations perpetually have debt and we don't consider that to be bad or debilitating. The problem arises for both companies and governments when there is excessive debt.

While the debt of the US is higher than I would like to see, having a debt limit just to begin with is crazy... the functional equivalent of someone refusing to pay the credit card company the amount that their balance from charges for spending exceeds their credit limit. While I think a debt limit is foolish, if you are going to have one then have it be a constraint on appropriations... no appropriations can be made if it would cause the debt to exceed the debt limit... that would end up stopping someone's favorite bill like the farm bill or military funding or something like that in its tracks.

But whatever they do, don't screw with the full faith and credit of the United States of America... if the current or prior Congresses approved spending and it resulted in debt then pay the bill. It would be a different thing if the US was unable to pay the bill, the problem is that some elements are refusing to pay the bill. Lunacy.

Besides, if the US had no debt, what would we invest in for our retirement?

Lots of issues here, of course. It's true that we can't just suddenly pay off the debt. We can't even pay it off in a few years. BUT keeping in mind that we already have incredible debt "should" make us a bit circumspect when finding yet more ways to spend another 1 or 2 trillion MORE dollars we don't have.

At some point, if we get out of whack with other countries, someone will offer their less inflated currency as reserve currency. There are lots of disadvantages to not having reserve currency dominance. I don't see that as imminent, but it can happen quickly. Just ask the UK. https://www.visualcapitalist.com/cp/how-reserve-currencies-evolved-over-120-years/

As always, YMMV.

 

[FLSUnFIRE]

While the US debt is a major concern, there are many other points in my original post that also contribute to my concern that the economy may not grow and the stock market may not rise and my retirement assets may not survive even a 1-2% withdrawal rate.

Are others concerned about the slowing and potentially reversing population growth of the US? The restrictions being place in using natural resources? The culture change from hard work to achieve the American dream to path of least resistance?

I’m also concerned about wars, espionage, IP theft, and more.

For those counting on a 3-5% above inflation return on their portfolio, where do you see that coming from?

Lets see, I'll let PB4USKI speak to the debt. To me it's more on an integrity thing and I'm not worried in the short term. Our debt is high but so is the value of the dollar so we are still on top and can keep borrowing. -Not that I want to see that but it's sustainable for now...... In a sense, the US is too big to fail as the dominant economy in the world and will likely be for some time. I think the aftershocks of COVID and supply chain issues will reinvigorate some self-sufficiency and greater diversification of our economy (both domestic production and spreading out imports among more sources) and will spur growth.



Wars, can't really plan for that. Other than a global superpower we are pretty safe here and if that happens, well.... I'm 20 miles from MacDill AFB but pretty much anyone on the east or west coast or near the missile farms in the middle will likely have a rapid lights out moment. At least I ERed and got a couple years of enjoyment. Most of the rest are just part of the above. IP theft, in one way can be argued to benefit humanity as cheaper knockoffs and improvements are accelerated. There are some economists that actively are against the concept of patents and copywrites. -I'm in the middle (today anyway, it's complicated), I think some protections are excessive and are used more to generate artificial scarcity than any valid argument of recouping costs and a reasonable profit.



I disagree that everyone is lazy now although it is easy for me to fall into that thinking sometimes. Every generation viewed the prior that way. A good podcast that talks to last years worries and how they correlate to current events is "Build for Tomorrow" by Jason Feifer (formerly the Pessimist's Archive -I prefer the original title). The young 'lazy" kids today are also hustling and driving the gig economy... definitely changes coming but walking out of middle management jobs is not a bad thing nor indicative of productivity!



I project returns of 1.5% over inflation as I manage my funds and think that's probably excessively pessimistic and am likely to die rich if I keep my expenses in check.


Bottom line, no one knows the unknowns. I hedge risks that are foreseeable and know that I (and humans as a species) are pretty adaptable so don't worry too much. I always considered myself to be a realist but was often accused of being pessimistic but these days I seem to be on the optimistic end of the spectrum. I'm not sure how much is my new perspective being FIREd and the constant doom and gloom media feeds we get now. -Probably a bit of both.

 

[Al18]

There's enough for me to worry about the things I can control. There's no point in worrying about the things I can't control. The national debt of the US is not significantly different than most other developed countries IMHO.

 

[MichaelB]

A comment on debt.

Total assets held by US households and nonprofit organizations in 3Q 2022 exceed $160T. Total liabilities are around $19T. So, the net worth of US households and nonprofit institutions is over $140T. Source is the US Fed https://www.federalreserve.gov/releases/z1/dataviz/z1/balance_sheet/table/

Public debt is around another $30T, so if we add that, it’s still a net worth of assets minus liabilities of $110T.

Wikipedia estimated in ‘16 the total U.S. value of assets at $269T and liabilities at $145T. This includes households, business, government, and everything else. It seems in line with the Fed research. https://en.wikipedia.org/wiki/Financial_position_of_the_United_States

The US has sufficient assets to more than cover debt plus future liabilities. I’m not saying debt is not an issue or no one should be worried, but it’s meaningless to discuss one side of a balance sheet and ignore the other. The total balance sheet and net worth of the US is greater than anywhere else in the world.

 

[folivier]

If we allow our government to keep increasing the debt we may not live long enough to see the fallout. But what our kids and grandkids? That is what truly concerns me. What will their future be like?

 

[Markola]

I don’t get the defeatism. I’d much rather have the US’ problems than those of any country I can think of. Can you name one world power that is doing better at your exact list and that you’d swap places with?

 

[aja8888]

I've kind of given up worrying about big issues I have absolutely no control over.

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

 

[Samsung4321]

Australian government debt in historical and international perspective

Australian Government debt has long been a significant electoral issue.

Around 2008 Australian Government debt was reduced to 5% of GDP. Insufficient 'risk free' debt became a problem for pricing of other debt. Subsequently it has been 'let 'er rip'.

The 'Made In China' deflation resulted in lowest interest rates in the history of the known universe - debt being central banks response.

WWI & WWII debt was paid off. The various 'Made In USA' and 'Made In China' debt splurges could be also.

 

[Exchme]

The US has abundant arable land, energy, minerals, talent and we are the beacon of the world.
Our demographics are better than anywhere else in the developed world.
Our property protection laws are better nearly than anywhere else.
Our infrastructure is good.
Our industries do a good job being competitive.
There are innovations in space travel, medicine, biology, robotics, AI, quantum computing, drones and more that will shape our children's world.
In every generation, the lazy and outrageous make the headlines and the old folks tut-tut that the world is falling apart, but the world is shaped by the brilliant and the hardworking, we rarely hear as much about them.
Cheer up, we will find a way to be OK.

 

[COcheesehead]

I actually see lots of hope, but why talk about that.

 

[DJRR]

I actually see lots of hope, but why talk about that.

Agree. I will only note that people have been constantly declaring the end since the 70's in my memory and I know we are a hell of lot better off now than then. Maybe they will be right eventually. Probably not in my lifetime short of nukes.

If we are concerned about the debt we will either default (seems to be more momentum for that nowadays), print money to pay it off, or confiscate the $32T in retirement assets that the govt. has created.

I am most concerned by our potential shrinking population, the burden of the military falling on less than 1% of the population, and the huge % of people who have no skin in the game from investments or taxes. I would like to see mandatory service and government funded investment accounts for all citizens at birth to give everyone a stake in the game and an understanding of what actually goes into governing but that seems like a pipe dream.

Otherwise, educated rich people like myself and my kids will continue to do well until the music stops. Just like Malthus, I believe the doomers underestimate the productivity and creativity of free humans. Americans always do the right thing, sometimes it just takes a while, but I am an optimist by nature.

 

[COcheesehead]

I see such a wave of entrepreneurship where I live. Young people strive to create their “thing” whatever that is. Nobody wants to go work for the “man” anymore. In boomer lingo, the government has jumped the shark and folks are starting to think for themselves. I likely won’t see the results in my lifetime, but I think the future is bright.

 

[USGrant1962]

There's enough for me to worry about the things I can control. There's no point in worrying about the things I can't control. The national debt of the US is not significantly different than most other developed countries IMHO.

Well, as percent of GDP our national debt is higher than every major economy other than Japan. And it is multiples of anything seen in our lifetimes. We're basically where we were at the end of WWII, without having endured a world war and without an obvious baby boom coming to fix it.

https://worldeconomics.com/Debt/
https://fred.stlouisfed.org/series/GFDEGDQ188S
https://www.multpl.com/u-s-federal-debt-percent

Excessive national debt in a non-wartime economy is a serious problem, as evidenced by Japan's economic stagnation. But IMO our debt is not the biggest drag on long-term investments going forward. As folks have said above, we have assets too. For example, for no rational reason, the Federal Government still owns about half of the land in the western part of the country.

To OP's question of long-term investment returns - historically they have matched real GDP growth, which makes sense when looking at total markets. GDP growth is generally a combination of population growth times economic productivity including resource exploitation. With very low expected population growth and economic productivity severely constrained by regulations I fear we may see a Japan scenario. Technology advances may help, but they have been a huge feature of the last 100 years so I don't see how they are a plus-up going forward.

Bottom line is we're not going broke any time soon, but real investment returns may be muted for a long time.

 

[Markola]

^^^^Well, you are free to buy the equities or debt of any country in the world that you think has a brighter economic future than the US. Just choose the index fund with a few mouse clicks. Personally, I have no idea which countries may outperform so I hedge my bets with 30% equity and 20% bond position in Vanguard International index funds.

 

[USGrant1962]

^^^^Well, you are free to buy the equities or debt of any country in the world that you think has a brighter economic future than the US. Just choose the index fund with a few mouse clicks. Personally, I have no idea which countries may outperform so I hedge my bets with 30% equity and 20% bond position in Vanguard International index funds.

My AA is 36% US equity, 18% international equity, 6% alternatives (mostly US REITs), 40% fixed income. What is your point?

 

[HI Bill]

...Excessive national debt in a non-wartime economy is a serious problem, as evidenced by Japan's economic stagnation.

This is a gross over-simplification. Yes, Japan has excessive debt and a spending problem. But they also have a negative population problem, virtually no immigration, and a broken society where the women can't hold jobs equivalent to those of the men. Salarymen earn compensation based on seniority, not productivity. Overall, their companies work to improve past products, not invent new ones. They fail to market their superior products outside their country. They are stuck in the past, and aren't moving forward. I could go on, but it's certainly not just about the debt.