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The Myth of Sound US Fundamentals Has Never Rung More Hollow

Project Syndicate  ( Original )
FEB 28, 2018

The illusion of prosperity is not prosperity.

Nobody in the US is saving. The personal savings rate just hit a 12-year low and America’s net national savings rate, taking into account government sector and business savings, is lower still. We’re starting to impose trading tariffs on our trading partners as if we’re the ones in a position of strength; we run a trade deficit with 102 different countries.

Debt, debt, debt, debt. Enormous, unsustainable debt. While our economic infrastructure continues to corrode beneath our feet, wild spending with borrowed money allows us all to pretend fundamentals are strong. They’re not, and the illusion is not for long for this world. The hangover is on the way. This final spending spree and its entirely nonsensical simultaneous tax cut will see to that.

The recent correction in the US stock market is now being characterized as a fleeting aberration – a volatility shock – in what is still deemed to be a very accommodating investment climate. In fact, for a US economy that has a razor-thin cushion of saving, dependence on rising asset prices has never been more obvious.

Driven by the momentum of trends in employment, industrial production, consumer sentiment, and corporate earnings, the case for sound fundamentals plays like a broken record during periods of financial market volatility. But momentum and fundamentals are two very different things.

Momentum can be fleeting, especially for a saving-short US economy that is consuming the seed corn of future prosperity. With dysfunctional policies pointing to a further compression of saving in the years ahead, the myth of sound US fundamentals has never rung more hollow.

ORIGINAL SOURCE: The Myth of Sound Fundamentals by Stephen S. Roach at Project Syndicate on 2/26/18