The US economy’s “mother of all bubbles” may be about to pop, according to an expert who warns that America’s exceptionalism is a facade. Chair of Rockefeller International, the author, argues that the country’s large share of global financial markets is unsustainable and will deflate if not addressed.
Analysts predict that US stocks will continue outperforming the rest of the world in 2025, but this enthusiasm only confirms that the bubble is at an advanced stage. The author notes that no one foreses a imminent pop, but the consensus on American exceptionalism has created a perfect storm for inflation to continue indefinitely.
The main issue lies in the country’s addiction to government debt, which now takes nearly $2 of new debt to generate just $1 of US GDP growth. This 50% increase from five years ago is unsustainable and could lead investors to demand higher interest rates or fiscal discipline, undermining economic growth and corporate profits.
The author warns that this is not a traditional bubble in the US market but rather a performance relative to the rest of the world. The alternative scenarios are more attractive, such as Germany and France getting their economies back on track or Beijing boosting consumption to stabilize its economy.
Experts must remember that the country’s stock market has lagged behind emerging markets for six out of 11 decades. This could be due to a slowdown in US growth or an uptick in other major powers, ending the incredible outperformance relative to other countries. The longer a trend lasts, the more confident investors become, and the more indiscriminate they buy into the mania, making it easier for prices to stall.
The classic signs of extreme prices and valuations suggest that the end is near. It’s time to bet against America’s exceptionalism, but a benign deflation is possible if alternatives begin to look more attractive.
Source: https://www.ft.com/content/9a0da0d6-92b4-4034-ac25-7b4abcbb0bbe