Long Term Troubles Still Plague the Economy
While the stock market may be reaching new highs, these gains are masking significant long-term economic risks. Issues like inflation, mounting debt, and geopolitical conflict are casting a long shadow over the future. Despite the current optimism, these underlying problems threaten to disrupt the economic stability many are banking on. As global uncertainty rises, the foundation of today’s market rally may be far shakier than it appears. Wall Street leaders are adopting a “hope for the best, prepare for the worst” financial strategy that is well worth emulating.
JPMorgan Speaks Out
Jamie Dimon is CEO of JPMorgan Chase. He summarized the challenges facing the economy.
Inflation, debt, and crumbling infrastructure hold drastic long-term consequences for the economy. He has previously called out America’s $35.7 trillion national debt burden as a predictable crisis. A crisis that puts the nation’s security at risk.
“People say when countries get in more and more indebted, that’s when they lose their real economic power around the world…Our economic power is the foundation of our moral and military power. And we always have to keep that in mind so I would like to deal with it sooner rather than later.”1
However, Dimon cited geopolitical instability as the biggest threat facing the economy.
With hot wars in Europe and the Middle East, Dimon said, “There is significant human suffering, and the outcome of these situations could have far-reaching effects on both short-term economic outcomes and more importantly on the course of history.” 2
War can spur inflation and disrupt supply chains. Market and energy volatility surge because of conflict. And as other countries get drawn in, the danger of major market collapse grows exponentially.
Overoptimistic Markets
Markets are hitting highs on the backs of interest rate cuts. Traders are leaving fears of recession in the rear-view mirror as optimism for a ‘soft landing’ takes hold. But Dimon isn’t convinced. Or as he put it, “I wouldn’t count my eggs.” He believes the odds of a recession still happening were better than the chance of no recession.
In fact, he still sees the potential for stagflation. Inflationary pressures are continuing unabated. On an international basis, massive government spending – whether for remilitarization or the green economy transition – combined with runaway debt are fueling inflation. Joined with a slowing global economy and rising unemployment, the conditions for stagflation are increasing.
Inflation is Not Dead
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Mohamed El-Arian is the chief economic adviser at Allianz. He resists the rose-colored view of traders pushing for more rate cuts to boost the market. El-Arian said, ” Enough talk about inflation being dead. Inflation is not dead.” The Fed has a dual mandate of moderating both employment and inflation. He fears as unemployment increases, the Fed will shift their focus away from controlling inflation. They will cut rates further to maximize employment. To him, this will reignite inflation and result in stagflation conditions. 4
Reports showed that CPI Inflation came in worse than expected last month. Consumer prices rose faster than economists forecasted for the first time since March. Both headline and core inflation (with volatile energy and housing costs removed) increased.
As it stands, core inflation is still historically high. It had never eclipse 3% from 1996 to 2020. Inflation had peaked at a 41-year-high of 9.1% in June 2022. This most recent CPI report is the last one before Election Day. Since Joe Biden took office, inflation has climbed 20.1%. So, prices aren’t coming down, they were just not rising as fast. But this latest report shows that trend may be ending. 5
Conclusion
Not even the CEO of the largest bank knows what the future holds. “No one knows what that real economy is going to do next year. No one,” Dimon said.
That’s why he concluded his assessment of the economy with these words: “While we hope for the best, these events and the prevailing uncertainty demonstrate why we must be prepared for any environment.” 6 People must stay aware of the longer economic situation and not get caught up in the short-term euphoria. As quickly as things rise, they can fall. The time to prepare for these long-term challenges is now while you have the freedom to do so. Moving a portion of your assets to safe haven physical gold can safeguard portfolio value against future shocks to the economy. And with gold prices on the rise, a tax-advantaged Gold IRA can both grow and protect your wealth. To learn more, contact us today at 800-462-0071.
