In terms of nominal GDP, the United States holds the title of the world’s largest economyThe US dollar stands as the predominant global reserve currency, and the future outlook of the American economy is intrinsically linked to the global economic landscapeThus, a precise understanding of the US economy is of paramount importance.

Experts from both domestic and international arenas present two markedly different perspectives regarding the state of the US economy: one advocating the theory of stagflation, and the other promoting a robust growth narrative.

Advocates of stagflation have supporting data

According to the United States Department of Commerce, in the first quarter of 2024, the actual annualized quarter-over-quarter GDP growth was reported at a mere 1.6%, significantly below the anticipated 2.5%. Furthermore, the core Personal Consumption Expenditures (PCE) price index—which excludes food and energy—registered a quarter-over-quarter annualized increase of 3.7%, outpacing the expected 3.4%, marking the first quarterly rise in a yearAgainst the backdrop of high interest rates and elevated debt levels, there are concerns that the ability to meet debt obligations could falter, potentially sparking a debt crisisThus, it appears that following a period of rapid growth, the American economy is entering a phase of necessary adjustment.

On the other hand, proponents of the robust growth theory also have their evidence

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Despite a slowdown in growth, the sheer size of the US economy remains impressiveWhen compared to other developed economies, the US growth rate still ranks favorablyObserving over a longer timeframe, the US GDP’s global share has slightly decreased from 25.4% in 1980 to 24.4% in 2022, yet per capita GDP has risen from 13th to 7th place globallyThe US continues to spearhead global technological innovations, alongside significant overseas direct investment surpluses, enough to cover hefty overseas debt interestsEven during the pandemic in 2022, this surplus reached an impressive $318 billionThat same year, the return on direct investments from the US abroad was 6.9%, compared to just 2.6% for foreign investments in the USFurthermore, recent employment data in the US has remained robustImportantly, US stock markets have been either hitting new highs or steadily approaching them—indicators that the country still preserves formidable competitiveness and influence within the global economy.

The contrast between these two opposing viewpoints often leaves one uncertain as to which narrative to embrace.

From this perspective, evaluating the state of the American economy is both crucial and somewhat trivial

It is crucial because any expectations must be rooted in a correct understanding of reality; however, it is also trivial because comprehending this reality is inherently complex, and some of these insights might only materialize years down the lineTime, however, waits for no one, compelling market participants to make decisions in the present, lest they find themselves falling behind.

A more pragmatic approach could be termed the synthesis theory, one that considers both the stagflation and robust growth narratives for a broader understandingYet, herein lies a dilemma: decisions made in the market can diverge drastically based on differing understandings of reality, occasionally leading to conflicting situationsThis conundrum places considerable pressure on market decision-makers, as they are required to expend substantial resources to navigate various scenarios.

The strength of this synthesis approach lies in its capacity to mitigate catastrophic strategic blunders by balancing the favorable with the unfavorable

It ensures that while considering positive aspects, contingency plans for adverse scenarios are established—at the very least steering clear of solutions that both stagflation and robust growth proponents might oppose, such as America’s move towards de-globalizationEven robust growth theorists posit that the dollar’s continued stability heavily relies on the enormous investment returns accrued through globalizationImagine a reversal towards protectionist policies; such maneuvers would undoubtedly diminish overseas investment returns, potentially heralding disastrous debt crisesConsequently, America’s de-globalization tactics—be it policies like “small courtyard, high walls,” imposing tariffs, or other restrictions and sanctions against foreign economies—could backfire, resulting in self-sabotage and inciting fear and contagion in global financial markets