Among the contributors and guests interviewees at CrushTheStreet.com, the overriding consensus is that the current market rally is unsustainable. While sentiment has generally risen, so too has our national debt; in fact, this particular liability hit all-time records and is rising at an alarming rate. Thus, we’re very likely to encounter an economic recession.
It was just a few months ago that the national debt hit $21 trillion. Now, it’s at $22 trillion. When you have so much debt, the “magic” of compounding interest works against you. At this rate, we’ll add trillions of debt every year until the figure is no longer meaningful.
And it’s not just the alternative-investment community that is sounding the alarm regarding an economic recession. Mainstream voices have expressed their concerns as well. For instance, many analysts question the wisdom of President Trump announcing quantitative easing when the economy is supposedly healthy.
Of course, this is nothing more than a political ploy to ensure a 2020 victory. Although Trump is popular with his core conservative base, he can’t just depend on them this time around. More than likely, the Democrats will produce a candidate who isn’t nearly as divisive as Hillary Clinton.
If that happens, Trump looks vulnerable. But nothing hits voters’ hearts more than their wallets. At the very least, staving off an economic recession until after the election is key.
Nevertheless, I just want to play devil’s advocate for this article: are we really headed off a cliff?
An Economic Recession May Come, But Later than You Think
One of the risks I see in anticipating an economic recession is timing. With some of the awful metrics I mentioned — and including many others — it’s tempting to adopt a purely defensive mindset. In other words, hoarding gold and guns seems like the right path.
I’m not about to tell anyone that those investments are foolish. However, a risk exists in taking this strategy to the extreme. If the markets don’t collapse or we fall into a “gentle” slowdown, guns and gold won’t do much good.
While it’s unlikely, it’s also not impossible that the markets and the economy continue their upward trajectory. How so? Metrics like the national debt are significant but statistical. We live in a society backed not on sound financial principles but on a mixture of free markets and threats.
For the most part, countries trade and do business with us because we’re the greatest economic power ever. But if some countries don’t open their doors to us, then comes the threat. You only need to read between the lines of some of our military conflicts to recognize the carrot and stick.
To avoid outright conflict, most if not all countries will play the diplomatic game. That plays into the hands of the U.S. government, and eventually, our economy.
I’m not going to venture a guess to how likely this scenario is. Suffice to say, as investors, we should be ready for anything.