5-minute Read

Low-quality economic growth is hiding the looming debt crisis, an illusion that enables us to pretend that everything is fine. 

Twelve months ago, the prevailing consensus among economic and market analysts foresaw the United States entering a recession in 2023 due to increasing interest rates and credit tightening. The banking crisis in March seemed to affirm these concerns. 

Contrary to expectations, the U.S. economy not only avoided a recession but also experienced accelerated growth. Real gross domestic product, adjusted for inflation, doubled from just over 2 percent in the first two quarters of 2023 to 5.2 percent in the third quarter. 

Economic Growth in 2024

The Conference Board anticipates an oncoming deceleration in US economic growth, attributing it to mounting challenges that will likely result in a brief and modest recession early next year. Several factors contribute to this outlook, encompassing heightened inflation, elevated interest rates, the depletion of pandemic-related savings, an increase in consumer debt, and the reinstatement of mandatory student loan repayments. This projection suggests a 2.4 percent growth in real GDP for 2023, followed by a decline to 0.8 percent in 2024.

Despite facing elevated inflation and increased interest rates, US consumer spending has demonstrated resilience throughout the current year. Nevertheless, sustaining this trend appears unwarranted. The stalling growth in real disposable personal income, diminishing pandemic savings, and the escalating household debt, coupled with the onset of mandatory student loan repayments, are factors contributing to our forecast of a gradual slowdown in overall consumer spending towards the end of this year. This contraction is expected to persist into the first and second quarters of 2024. As inflation and interest rates diminish later in 2024, we anticipate a resurgence in consumption.

What’s Really Going On?

However, despite this reported economic growth, a significant proportion of middle- and working-class Americans perceive no tangible benefits. According to a November 2023 Financial Times poll, 55 percent of Americans feel financially worse off. This sentiment varies along party lines, with 82 percent of Republicans expressing financial dissatisfaction compared to 31 percent of Democrats. Surprisingly, nearly half (46 percent) of Democrats report “no change” in their financial condition under the economic policies associated with President Joe Biden, leaving only a quarter who believe in the positive impact of these policies.  

Setting aside political differences, the question arises: why do so many Americans feel economically disadvantaged in a growing economy? The answer lies in the diminishing purchasing power of Americans, a consequence of inflation. While headline inflation moderated to 3.2 percent in October, certain crucial categories such as housing and transportation continued to experience high single-digit increases (6.7 and 9.2 percent, respectively). Over the past three years, Americans have endured persistent price inflation, resulting in a nearly 20 percent loss of purchasing power since 2020. 

This erosion of purchasing power becomes more pronounced when considering the broader picture. Since 2020, Americans have lost nearly 20 percent of their purchasing power, equivalent to what cost $1.00 now costing $1.21. Prices in critical categories like energy remain over 70 percent higher than three years ago. A two-decade trend of “moderate” inflation, driven by the tripling of the monetary base, has led to a 45 percent reduction in the value of the dollar since the turn of the century, contributing to a pervasive sense of financial strain among most Americans. 

Other Factors

Another factor contributing to the widespread perception of financial hardship is the source of GDP growth. In essence, Bidenomics relies heavily on fiscal stimulus, marked by increased government spending on initiatives such as the Inflation Reduction Act, the Infrastructure Bill (with limited relevance to actual infrastructure), and the CHIPS Act. The third quarter saw a 7.0 percent increase in federal government spending and an 8.2 percent rise in national defense spending, supporting the 5 percent GDP growth, while consumer spending lagged at 3.6 percent. 

This reliance on government spending, particularly on defense and entitlement programs, has come at a significant cost. In 2023, the cost included a $1.7 trillion deficit funded by new debt carrying an interest rate of nearly 5 percent. With the total national debt nearing $34 trillion and annualized debt service costs at $1 trillion, concerns are growing among debt buyers about real (after inflation) returns. This growing supply/demand gap is expected to necessitate higher nominal interest rates, around 5 percent, intensifying interest costs for the federal government and leading to the issuance of trillions of dollars in additional debt in the coming months. 

In summary, the current appearance of robust economic growth masks an impending debt crisis. The notion that sustained economic growth can alleviate the debt burden amid trillion-dollar deficits is deemed unrealistic. Addressing this situation requires more impactful measures. 

Low-quality economic growth is hiding the looming debt crisis, an illusion that enables us to pretend that everything is fine. U.S. GDP Disguises Economic Reality The Golden Horizon

There is no mistaking the current state of the nation, from inflation and layoffs to the declining dollar and an overall decrease in the stock market. Now more than ever, precious metals are taking center stage as an essential hedge against inflation and a distressed economy. Reagan Gold Group specialists are standing by to guide you with your purchase of precious metals such as gold and silver. Contact Reagan Gold Group before these metals skyrocket in price due to the current US inflationary state. Book a FREE consultation , re-evaluate your retirement portfolio, and consider a share of gold as a measure to secure your assets and hedge your business and your family from unexpected financial unrest. 

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