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#135: How Trustworthy is the US Economy?



A retired investor, at age of about 60-70 years, faces added life expectancy of 25 to 35 years (or 30 to 40 years if spouse included). Retirement funds are then expected to support living expenses for the remaining lives. Retirees should now examine the trustworthiness of the US economy until 2040. Can the economy sustain them over that many decades?

What constitutes adequate retirement assets should include potential investment gains but also inflation (over 3%/year in the US). In addition retirees should also anticipate rising medical costs. What are then the required savings that would keep a retired person with a satisfactory income?

There is no question that the US economy is superior to all others.  The top five countries rank their inflation-adjusted GDP as follows:(1)



The deflated GNP of Japan, Germany, United Kingdom should keep their slightly rising economies at current levels. An aging population, lower birth rates and social insurance should assure acceptable retirement living. Meanwhile, China GDP is rising but will not come close to the wealthy US:(1)




A continued prosperity of the US is assured. Even the higher GDP annual growth rate for China does not show as sufficient growth rate to assure the narrowing of the current GDP gap with the US. There is also a very large gap between China and the US in GDP per capita. The narrowing of such differences would be unrealistic:(1)


There are, however adverse trend that curtail US economic leadership. The US balance of trade has been consistently negative - imports exceed exports:(1)



A further detraction form the US economy is the government deficit:(1)

With the trade and budget deficits near $1.4 Trillion, the US economy carries a liability that current tax collection deficits are unlikely to correct. That is evident in the current US tendency to take advantage of existing wealth by increasing debt that defers any settlement into the future. Such deferred liabilities have also immediate effects on current affordability of social expenditures. 2017 spending for real US personal consumption is $12.6 Trillion.(2) The trade deficits plus government spending deficits now detract over 10% that would have been otherwise available for US consumers immediately.  

The immediate prospects of increased debt and deficits are not good. Though the US wealth is still enormous, does that constitute that a peak in economic history or only a rebalancing of what now constitutes an indefinite continuation of exorbitant advantage as compared with other nations?

Summary:

There is no question that the present wealth of the US economy makes it superior to other countries. Whether families can benefits from such wealth is a matter of a personal accumulation and distribution of assets. Whether individual retirees can actually take advantage of so much wealth depends largely on personal circumstances. The fact is that the US still remains as the most prosperous country in the world. The US has by far more millionaires than any other nation.

In 2018 we may have possibly have reached the zenith of our progression from a poor country to the present high levels of prosperity. Rising deficits and escalating public and private debt may be one of the indicators of decline, while the rise of China may offer a challenge to take over US global leadership.

In the next few years the best strategy for the next 30+ years of retirement is to safeguard retirement assets against losses provided that a modest but low-risk income can be assured. The heady investment gains realized from 1950 through 2000 cannot be repeated. 

So far the US economy is trustworthy for the proximate future. What may happen in 2040 should be seen as a future that will generate new geopolitical risks for the US.   














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   (1) http://databank.worldbank.org/data; (2) https://fred.stlouisfed.org/







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