What will the future of the US be? Continued boom or bust? As a European immigrant who has lived more than 20 years in the US and loves this country dearly, one of the characteristics I admire the most in Americans is their eternal optimism and overall “can-do” attitude. There is no better way to see these traits than in Hollywood movies, because of the usual Happy End – be it war, natural disaster, aliens, or whatever ills befall this country. Of course, happy endings and optimism are well-founded in the last 200 years of US history. All previous challenges – political, economic – have given way to better and more prosperous times. As many have said before, it never has paid to bet on the decline of the US. And why else would have tens of million immigrants have come to this “exceptional” country called the USA?
History has some warnings
I hate to break it to you, but there is a fly in the ointment today. History is no guarantee for the future, as many countries throughout world history have discovered. Greece, Rome, Great Britain, the Netherlands, Portugal, and Spain are just a few examples of economic fortunes and empires built and subsequently lost. In each of these instances, I wonder – what percentage of the population saw the downfall coming or was prepared for the sudden or stretched-out decline over generations?
The US economy in books
That brings me to the current state of the US, especially its economic future. If you visit your local bookshop, you will find a host of recent political and business books written by prominent authors that deal with our challenges: high level of debt, loss of industrial base, inequality, China taking over the world, failing education and schools, lack of modern infrastructure, or whatever the respective author uses to predict hard times and even harder choices to stop the perceived decline.
Consistent with American optimism, though, all these books (usually in the final chapters) have a beautiful happy ending (could another reason be that books with sorry endings for the US probably would not sell?). No matter the book, their premise is that the US will be back to normal after some hardship, and the country’s economic and military leadership position will last for longer than you and I will be alive.
You need to decide for yourself
What do you think is ahead? How do you see the next 10, 20, or even 50 years evolving? The potential scenarios could incorporate a wide spectrum, with good arguments being made for each, and the associated consequences for you, your family, your life and business would be dramatic, no matter which scenario you choose. Will there be a great boom, structural decline, or the muddling through “new normal” of today? Let’s look at two opposite scenarios and your potential action plans.
Scenario 1 – Boom and Greatness
If you believe that the US will master all challenges as in the past, you will keep your life fully grounded in the US. This means you will send your kids to US colleges no matter the out-sized tuition fees. Additionally, you will invest heavily in US-based assets (your home, stocks, US bonds, US dollar nominated bonds) betting on the rebound. You will continue to build your social and professional networks here. You will contribute to your 401K/IRA to maximize tax benefits. The only passport you ever need is the blue one you have got. You will not own the “barbaric relic” gold, as the US dollar will be the king of all currencies for a long time to come.
Scenario 2 – Structural Decline
What would you do if you believed that there is no happy ending? What if, for whatever reason, the economy gets significantly worse and has a true depression like in the 1930s, lasting 10 years and with unemployment reaching 25%? Is it possible that trade and political tensions with China lead to war (economic, cyber, or shooting matches in the South China Sea.) Just imagine a kind of a replay of the decades’ long power struggle in the Pacific between the US and Japan. It ended in Pearl Harbor and full-scale war.
Moreover, what if the only way out of the current US debt trap is massive dollar printing and hyperinflation? Would tough austerity be in order? Could gold be confiscated again like under FDR in the early 1930s? Alternatively, the holding of foreign currencies or private retirement assets (read: 401Ks/IRAs) could be compromised to reduce the federal debt. We saw similar moves by Argentina and Hungary. Could there be riots on the streets like in Europe?
Your investments should follow your assumed scenario
The life you live is your implicit or explicit bet on the scenario(s) you expect. As such, it is better to pick your assumed scenario consciously than by default. Here are a few questions to ponder:
- Do you invest everything in the “base case” scenario? This means you disregard extreme positive or bad scenarios because you just “know” that they won’t occur anyhow.
- Do you follow a risk-averse strategy by spending some money on preparing for extreme outcomes, in particular, bad ones, the now-famous “black swans”? If so, how much do you invest time and energy in potential escape hatches (e.g., the second passport, speaking a foreign language)? Will you be upfront with your family and friends about your betting on the Bust scenario?
- Do you “bet the farm” on an extreme bullish (Boom) or very bad outcome (Bust)? If you believe in very tough times ahead for the US, you might think about selling all your US-based assets. This would also mean stop contributing to or dissolving your 401K/IRA, and move abroad.
- Can you find evergreen investments that will thrive in both feast or famine US scenarios (e.g., finance your kids’ Mandarin skills, acquire some property in Latin America.)
The future is unknown. Your scenarios and assigned probabilities will be different than mine. Only you can decide on what the right course of action is for you. May your contemplation help you make the right choices for the upcoming years and decades! You can count on Go Global Be Happy to provide thoughts and recommendations. We will cover both the US and foreign places.
© 2019 Michael Froehls – All Rights Reserved
Photo Credit: © Michael Froehls