Newport Beach-based asset manager, Robert Arnott, tells Marketwatch that he sees a a “3-D Hurricane” — a perfect storm of deficits, debt and demographics that Arnott said will create “serious headwinds for investors in the years ahead.”
For starters, the U.S.budget deficit is much bigger than it appears, Arnott said. When obligations for Social Security, Medicare and Medicaid are counted, the already-bloated deficit balloons. Add in state and local debt, and the national overhang exceeds 500% of U.S. GDP, Arnott said. “Think about what you made last year, multiply by five, and that’s your personal share of the national debt,” he noted.
The question, Arnott said, is who pays this debt? That becomes a demographic problem for the U.S. “Our population is aging and our working age cadre will be shrinking as a percentage of the population,” he explained.
With more retirees and fewer workers, the economy will slow, Arnott said. Declining GDP growth will pressure corporate earnings and dividend growth. Meanwhile, Arnott said, if the U.S. has trouble paying its bills, policymakers may decide to reduce the value of the debt by printing more and more money, debasing the U.S. dollar and spiking inflation.
“If we turn to the printing press as the way to reduce the value of our debt, which I think we probably will, that creates inflation risk,” he said.
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