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Takeaways
- The U.S. dominates global markets but faces rising challenges from the CRINK bloc (China, Russia, Iran, North Korea) and shifting world dynamics.
- Global economic power is dynamic: The U.S. is not invincible, and history shows leadership shifts over time.
- U.S. vulnerabilities include an expensive stock market, rising debt, aging demographics, and threats to dollar dominance.
- I recommend baby boomers protect against a potential crash by moving to safe assets like Treasury bills and TIPs during the Retirement Risk Zone.
The U.S. population of 340 million people is only 4% of the world, yet its $62 trillion stock market is about half of the world’s total for equities. The U.S. is the tail that is wagging the world’s economic dog.
The CRINK countries — China, together with Russia, Iran and North Korea — want to replace the U.S. as the world’s leader, creating a Thucydides Trap that forces them onto a collision course with the U.S., just as Athens once did with Sparta. CRINK’s population of 1.6 billion people is five times that of the U.S., so the U.S. is grossly outnumbered. Even NATO, representing a total of 1 billion people, is significantly outnumbered.
India, with its 1.6 billion people, is not taking sides. Although its border with China is contentious, it has close ties to both Russia and the U.S.
A History of World Dominance
It’s helpful to recognize that the U.S. wasn’t always the dominant economic power. As shown in the following, Europe had the lead in 1900, then, by 1987, Japan and the U.S. were co-dominant, and now it’s the U.S.
The point is that global economics are dynamic, so the current situation will change even though it may feel like the U.S. is invincible. It’s not.
A Bimodal World Economy
The CRINK countries are distancing themselves from the U.S. in a variety of ways including:
- Reduced reliance on the U.S. dollar. China and Russia are trading with each other in yuan and rubles, and they have created a digital currency to rival the USD.
- Alternative trade and energy networks. For example, the China-Russia Power of Siberia 2 gas pipeline delivers much-needed energy to China.
- Challenges to U.S. hegemony. The CRINKs undermine sanctions and alliances like NATO, and find ways around U.S. tariffs.
Meanwhile the U.S. is dealing with its own domestic problems that include:
- A very expensive stock market as measured by multiple criteria, threatening a correction.
- Tariffs that tax U.S. citizens as a way to reduce significant deficit spending.
- Potential loss of status as the world reserve currency as interest payments on its debt swell, devaluing the U.S. dollar.
- Reliance on cheap manufacturing costs in other countries, especially emerging markets like India. Tariffs are unlikely to bring manufacturing back to the U.S.
- An aging population. The U.S. wants to protect its older citizens, and this requires help from the young.
Conclusion
Here’s a summary of the economic factors in play that hopefully will be resolved peacefully
Any one of these factors has the potential to cause a stock market crash that baby boomers should defend against now. Boomers should move to safe assets like Treasury bills and TIPS while they are in the Retirement Risk Zone that spans the five years before and after retirement. Younger investors with longer horizons are likely to survive a crash, but they won’t like it.
Ron Surz is president of Target Date Solutions, developer of the patented Safe Landing Glide Path and Soteria personalized target date accounts. He is also co-host of the Baby Boomer Investing Show. Surz’s passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book, “Baby Boomer Investing in the Perilous 2020s,” and he provides a financial educational curriculum.
For anyone who relies on TDFs — or advises those who do — Surz’s new book is a must-read guide to understanding the risks, solutions, and future of a secure retirement.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
