U.S. Economy Won’t Collapse Any Time Soon – Here Are 5 Reasons Why

A good way to think about our country’s economy is to think of the U.S. like a boxer. We were knocked flat on our back in 2008 and have since struggled to one knee but have never got back to our feet. [As such,] those conversations that imply we might be on the verge of falling down again are rather pointless…With this much slack in the economy, it’s unlikely that any economic downturn from here will be substantial. Does that mean I think the U.S. economy can’t contract from here? No, but I would be very surprised if we were to experience another blow similar to the 2008 recession where real GDP fell 5%. [Let me explain.] 

So says Cullen Roche (www.pragcap.com)  in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. 

The article goes on to say, in part:

To put this argument into some perspective, analysts at ING tend to agree. They see the economy as muddling through, but not collapsing. They cite 5 reasons for this perspective:

• Cyclical sensitive sectors, namely the housing sector and the auto sector, are already weak and are unlikely to contract much more.
• Households’ balance sheets have improved since the global financial crisis. Lower rates over a considerable period of time benefit net borrowers. Most US households will benefit from low borrowing rates.
• The trade deficit is likely to narrow due to slower import growth, decline in energy and commodity prices and a weak trade weighted dollar.
• Decline in commodity prices will check headline inflation and could lift households’ purchasing power.
• Investors’ fears are based on their most recent experience. The unpleasant memories of the global financial crisis are biasing investors’ sentiments.

Equity markets could be a bit of a different story here. I am actually becoming increasingly concerned about a potential profits recession in the USA as international growth tapers off (remember, the market is not the economy).

With all of the doom and gloom in the air, [however,] I think it’s important to keep things in some perspective: the downside for the U.S. economy as a whole isn’t enormous here – we just don’t have that much further to fall because we never really got up.

*http://pragcap.com/5-reasons-the-u-s-economy-wont-collapse