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- Ruchir Sharma’s Column The Growth Balloon In America Will Burst If Not Today Then Tomorrow
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Ruchir Sharma Global Investor and Bestselling Writer
The US’s share in the world’s financial markets is exceptionally high. I call this a ‘bubble’ which will burst if not today or tomorrow. Almost every Wall Street analyst is saying that US stocks will continue to outperform the rest of the world in 2025. But all this enthusiasm only confirms that there is overwhelming consensus about America’s exceptionalism.
Wall Street’s stance has now extended to the popular media as well. It usually catches market trends when they are well established and close to completion. In such a situation, the promotion of American superiority has now become the subject of TV, radio, podcasts, newspaper columns, and front stories of magazines. And they have a track record of getting future trends wrong!
America can remain on top due to the impressive earnings of its corporates. Had it not been for the extraordinary profits of big tech firms and massive spending by the government, its income growth would not have been so high. Over time, large scale profits are lost to competitors. Then again, growth and profits are also being artificially boosted by the heaviest deficit spending ever recorded.
However, most economists say the economic boom will continue because the balance sheets of American households and companies are in good shape. Some who worry about President-elect Donald Trump’s tariff or immigration plans, however, think they would hurt foreign economies more than the US.
But every bright story has a dark side. Addiction to government debt is increasing rapidly in America. My calculations show that it now takes about two dollars of new government debt to generate one additional dollar of US GDP growth—a 50 percent increase from just five years ago.
If any other country was spending this way, investors would flee. But at the moment they feel that America, as the world’s leading economy and reserve currency issuing country, can do anything.
It’s quite possible that these same investors, perhaps triggered by bigger deficits or auctions, will start demanding higher interest rates or some display of fiscal discipline from the US by next year. These demands would at least temporarily shift the US away from its reliance on government spending and in turn weaken economic growth and corporate profits.
Perhaps Germany and France will be able to turn their economic situation around – as Greece and Spain did a decade ago. Perhaps China, under pressure from Trump-tariffs and weak domestic demand, will eventually have to boost consumption to stabilize its economy.
Analysts mesmerized by America point out that America has been the world’s leading market for a century, but they forget that its stock market has lagged behind the rest of the world in 6 out of the last 11 decades. Most recently in the 2000s it returned zero, while emerging markets tripled in value.
America’s incredible performance compared to other countries could also end if growth there slows, or the world’s other major economic powers accelerate, or if some unexpected factor is responsible. .
‘Bubbles’ often end just like that: unexpectedly. Just look at two recent examples in global markets: the commodity boom, which began to end in 2011 with a surge in new supply, and China’s growth-bubble, which collapsed in 2021 due to state crackdowns on the property sector.
(These are the author’s own views)