The old adage is that "generals always fight the last war." By
that measure, the United States has successfully addressed most
the threats that precipitated the 2008 financial
. The problem is that while policy makers have spent the past
five years putting out the fires from the last crisis, they've
done less to prepare for the next:
a retirement crisis
But before highlighting
the future risks to the US economy
, let me take a step back and remark on what has improved since
the time of the Lehman bankruptcy.
Back then, the global economy was facing the prospects of
another Great Depression. That scenario was thankfully avoided,
and the US financial system - the proximate cause of the crisis -
is in much better shape than it was in 2008, as
Larry Fink recently pointed out
. Leverage levels are considerably lower and we have seen a
regulatory overhaul that has left US financial institutions
better capitalized and less risky. In other words, the risk of
another imminent financial system crisis has likely abated.
Unfortunately, given the global economy's
and slowing growth, there are two major issues that foretell a
coming retirement funding crisis.
Government debt levels remain elevated, a troubling
prospect considering that the US government has failed to address
entitlement reform and an aging population will put increasing
demands on state coffers
. As a result of softening the blow to the household sector
during the last financial crisis, most governments, and
specifically the US government,
have levered up their own balance sheets
. US federal debt outstanding - which excludes debt held by the
social security trust fund - has climbed by approximately $6.5
trillion since the Lehman bankruptcy. As a result, US
non-financial debt is actually $7 trillion higher than it was
five years ago. This means that, as the chart below shows,
despite the "deleveraging" of the past five years, US
non-financial debt now stands at 245% of gross domestic product (
), compared to 225% in the second quarter of 2008.
US household savings are inadequate to fund an
increasingly lengthy retirement.
Amid surging government debt and an aging population, future
retirees may have to fund more of their retirement themselves.
Unfortunately, the post-crisis savings surge predicted by many
pundits has yet to materialize, and most US households can no
longer look forward to a private sector pension.
The good news is that while the recovery has impressed few, it
has been much better than the alternative we were all facing five
years ago, and there is still time to avoid, or at least
mitigate, the pending retirement crisis. The bad news is that,
following five years of post-crisis reform fatigue, neither the
government nor US households are showing much inclination to do
Russ Koesterich, CFA,
is the Chief Investment Strategist for BlackRock and
iShares Chief Global Investment Strategist. He is
a regular contributor to
and you can find more of his posts