Six longs months before the latest round of bureaucratic brinksmanship shut the government and nearly resulted in default, former Reagan budget director David Stockman was turning heads by proclaiming it was Sundown in America. In spite of lofty stock prices, he argued, the U.S. economy was stagnant, hiring was non-existent, and the peak in household income was reached 25 years ago.
Since then, Stockman's theory has been both glorified and vilified, and to some degree imitated by the Chinese who recently mocked the U.S. during the recent debt showdown as being a beggar nation.
So what's the deal? The U.S. clearly has issues, but are our debts and problems truly insurmountable?
"The U.S. is the strongest, most diversified, economy in the world -- and there is no number two," says Hank Smith, the chief investment officer at Haverford. "China is so far behind the U.S. it's not even worth talking about."
For the record, the $16 trillion U.S. economy is currently about 25% larger than China's. Given the latter's rapid growth, the Asian giant will likely become the world's largest economy as soon as 2016.
But even if and when that happens, Smith argues that, bruised image or not, the U.S. and the dollar will still be the world's top pick.
"Whenever there's a problem, money comes to the United States. We saw that in '08 and '09 and we continue to see that," Smith says. "When S&P downgraded the U.S. Treasury from AAA in the summer of 2011, what did the bond market do?" he asks, "It didn't collapse, it rallied."
Fair point. But certainly the perpetual gridlock and in-fighting and cliffhanger crisis scenarios we face every few months cannot be helping our cause, nor can our inability to address our long-standing fiscal imbalance. And yet, Smith remains confident, knowing that it not only will ultimately get worked out, but that it's been worse before.
"The markets know the U.S. economy is strong," he says. "Corporate America is very strong, in fact, it's never been stronger," adding that Corporate America has been "the shining star throughout this whole financial crisis."
Unsurprisingly, when it comes to talk about the U.S. losing its critical status is the world's reserve currency, Smith is clear in his view.
"That's not going to happen."