Nouriel Roubini, the global economist who foresaw the 2008 crisis, shared his thoughts in the Financial Times in what I thought was an insightful evaluation of our economy and where things may be heading.

Firstly, market discipline, reasonable advisers and Fed independence provided guardrails on the worst policies after “liberation day”. As markets corrected sharply soon afterwards, the US government negotiated more reasonable trade deals.

Thus, the US is experiencing a few quarters of a growth recession (GDP expansion below potential) and a modest rise in inflation rather than a serious stagflationary recession. By next year growth will recover as monetary easing and fiscal stimulus are still underway while financial conditions have eased and the tailwinds from AI-related capital expenditure will continue.

Second, American exceptionalism will continue as the US (along with China) is ahead in the most important industries of the future including AI and machine learning, robotics, quantum computing, space commercialisation and defence technology.

Roubini estimates that annual US potential growth could rise from 2 to 4% by the end of this decade while stagflationary policies could reduce it by 0.5 percentage points. Thus, tech trumps tariffs. If American exceptionalism was ruling when potential growth was 2%, it would strengthen as growth rises towards 4% which can also be good to help pay down the US debt.

Ditto for stock returns. When annual growth was 2% for the last two decades, US equity returns were around double digits, well above those of other advanced economies and emerging markets. If growth will be much higher this decade and in subsequent ones, such equity returns will be even higher. Price-earnings valuation ratios can remain elevated if faster earnings growth is driven by increased economic growth. Of course, temporary market corrections will occur and tech disruptions will lead to winners and losers. However, the now common view that the US stock market is in a massive bubble and bound to crash is incorrect over the medium term. (That is encouraging!)

As far as debt sustainability is concerned, the public debt to GDP is estimated by the Congressional Budget Office to rise sharply under the assumption that real economic growth will average 1.6% per year from 2025 to 2055. If potential growth is slightly higher at 2.3%, the ratio is stabilised over time. With growth at 3% or above, the ratio drops over time and is sustainable, assuming that the growth dividend is not wasted with even more spending. Increased GDP growth might lead to higher real bond yields but a large tech-driven positive aggregate supply shock could reduce inflation to near zero over time as costs of production of goods and services sharply fall while productivity growth rises. So the net impact on nominal bond yields could be a wash over time which may be good news for mortgage rates too and a key driver of the housing market.