Are we ignoring a US economic crisis that could emerge by 2030?

The further into 2024 we’ve come, the more bullish investors have become and economists and consumers alike have felt like the worst of multi-year challenges are behind us.

But despite the resilience of the US economy, which was hotly tipped to enter recession as recently as the new year started, there are headwinds that could mean that the near-term positive environment turns sour by the end of the decade.

That’s the warning from Los Angeles based independent economic research firm Beacon Economics which says that a crisis is brewing.  

The firm says that the huge Federal deficit and overvalued asset markets are driving excessively hot consumer spending. That might be good for the current growth of the US economy but is setting up problems later on.

First, the good news. The outlook calls for the US economy to experience a steady pace of GDP growth in 2024, probably in the 2% to 2.5%. Inflation is heading towards the Fed’s target and there remains optimism that interest rates will be cut at least once this year. And there’s the strong performance of the US equity markets.

But that is now. And the report raises concerns that several factors cannot last indefinitely:

• Elevated spending by American households is being driven by unusually high asset values and the $5 trillion in (stimulus) money injected into the economy during the pandemic.
  
• The savings rate for US households is below 4% for the first time since the runup to the 2007 Great Recession.
  
• Today's excess spending is being fueled by public, not private, sector borrowing.
  
• The nation's current account deficit is twice what it was prior to the pandemic.
  
• The United States' net asset position is in the worst deficit position in history.

"These issues began long before the pandemic struck, but actions by the Fed in response to the crisis have made the nation's long-run economic situation significantly worse," said the outlook’s author, Christopher Thornberg, founding partner of Beacon Economics. "Their decision to firehose an extreme amount of new money into the economy expanded U.S. money supply by 40% in an 18 month period – show me a nation that wouldn't see a surge in spending and prices after such an aggressive increase."

Like the plot of every Hollywood disaster movie, Thornberg is sounding the alarm on what could be ahead, but the challenge is to get others to listen.  

"There is no version of the future in which these trends are sustainable," he said. "In any smaller economy the warning signs would already be flashing red to global asset markets, but the United States is too big and relatively safe for the danger to be acknowledged… yet."