Is The US A "Safe Haven" Or A "Powder Keg"?

Every time there is some sort of global upheaval in markets or geopolitics the US benefits from a stronger dollar and a rally in Treasury bond prices.  It has been thus for decades, as the US is viewed as a safe haven for capital from all over the world. 

Is this view still valid?

In my opinion, no it is not.  The US should no longer be taken for granted as a safe haven;  instead, it should be viewed more as a risk factor than anything else, a powder keg that could potentially blow up spectacularly. This is not a recent development, it has been a long time in the making.

• For one, it was the US itself that caused the Great Credit Crisis in 2007-10.  Yes, there were other economies that followed the same unsound path: loose money, substandard lending practices, real estate excesses and unbridled securitization of loans and derivatives.  But, it was the US that was the main culprit and it was the US that subsequently "printed" trillions to save its banks, brokers, funds and insurance companies from default - well, most of them anyway. The deleterious effects of that massive QE are still with us, even if the even more massive COVID era QE has far outdistanced it.

• The US is now amongst the most highly indebted nations in the world, with public debt to GDP at 121%, an enormous increase from just 30% in 1980.  The debt ratio has accelerated the most during the Great Debt Crisis (see chart below), precisely because the government "saved" the private sector banks, investment banks, etc. by assuming their debt - foolishly, in my opinion.

• Going back further, the US economy has become emasculated, wasting away its manufacturing muscle by shifting it abroad, mostly to China.  As I said before, manufacturing is the fountainhead of all technology, of all high value-added economic processes. According to the Bureau of Economic Analysis, US manufacturing now accounts for 11.5% of GDP, down from 27% in 1960.  Crucially, manufacturing employment is now a mere 7% of total, down from 30% in 1960.  US manufacturing leadership is now limited to aircraft (Boeing) and military equipment.  Not good.

• The loss of manufacturing jobs has all but eliminated the solid American middle class, creating a socio-economic chasm between the working poor and the ultra rich.  The political consequence of this divide are becoming apparent (Trump/MAGA) and dangerous (storming of the Capitol, rise of the far right).  Unthinkable previously, the US can no longer be considered a politically stable nation.

• As is common in nations, societies and economies that are losing their leadership edge, financial speculation in the US has increasingly replaced healthy, productive economic activity.  American tycoons are now mostly owners and top executives of hedge funds, investment banks, and until recently, all manner of crypto/NFT firms.  That's not a healthy sign, it marks an economy that makes money from trading paper, instead of innovating and producing. 

• One final observation: a sure sign of an Empire in decline is that its supremacy is increasingly challenged by second or even third rate powers, who would never dare do so before. Iraq, Venezuela, Afghanistan, North Korea, Turkey and, of course, Russia are nipping at Uncle Sam’s heels with increasing frequency, if with questionable success. But the mere fact that they are doing so speaks volumes.

So, yeah, the US is no longer a safe haven in my book.  And unless American leaders wake up soon, they will end up wondering why the proud nation has become a has-been.