Nobody in Washington is talking about it, but Loomis Sayles vice chairman Dan Fuss looks at the numerous trouble spots around the globe and finds it impossible to reconcile Congressional Budget Office defense spending projections with the stark reality that the U.S. is facing a world where a stable balance of power is disintegrating.

Washington, as the saying goes, is unable to see beyond the next election. But Fuss, a former Navy lieutenant, considers CBO projections for a continued decline in defense spending "wildly optimistic."

Those projections of smaller military outlays underpin the expectation that the federal government may manage to keep budget deficits under control for the next five years, even as entitlement spending on Social Security and Medicare continue to climb. Conventional wisdom holds that the entitlement explosion won't emerge as a serious problem until about 2020.

Fuss thinks war- and world-weary Americans and their leaders are victims of wishful thinking. "The world is getting much more stressful in Asia and Eastern Europe," he says.

Fueling American complacency is the irony that global problems are getting worse at exactly the same time as the U.S. economy is strengthening to the point where the recovery is self-sustaining and doesn't require any Federal Reserve stimulus. "We're doing very well, whether or not we can get the unemployment rate down a lot lower and get more people into the work force," Fuss says.

It's hard to believe after such a slow, anemic recovery, but he cites labor shortages emerging in specific regions and sectors, whether it is oil-field workers in North Dakota or biotech scientists in eastern Massachusetts. The pharmaceutical industry can't simply flip a switch and "turn out biotech scientists Ph.D's" on demand, Fuss notes. Moreover, demographics point to the labor force participation rate staying low and Babby Boomers transition into retirement.

Even on the wage front, he believes Americans' incomes are better than government statistics indicate. Bonuses and other forms of incentive compensation are being used with increased frequency and "government surveys don't pick that up. It's getting expensive to hire people," Fuss says, adding that incomes could rise 3.0 percent this year. That's not great, but it is an improvement.

Against this backdrop, the news from beyond North America's shores ultimately demands a stronger U.S. presence than anyone in Washington wants to contemplate. "Russia and China are trying to put together" an alternate [economic trade zone], Fuss notes.

Faced with what could turn into a global energy glut, Russia is seeking to prop up its energy industry by seeking to supply China's expanding oil and gas appetite. China, in turn, is throwing its weight around the South China Sea, through which 50 percent of world trade travels.

The Middle East remains a source of endless bad news. "I hope it quiets down, but that's not the way to bet," Fuss says. "Congress collectively doesn't seem to be aware of these problems" as it relates to future defense spending. Many might say the same thing about the executive branch.

So how is Fuss betting? "A year ago, I thought the Fed would eventually raise rates on the short side," he says. "If [the U.S. economy were] viewed in isolation, the Fed should raise rates."

While the U.S. economy is already "strong enough" to handle it, the weak economies in Europe and many emerging markets render any increase in U.S. interest rates problematic. An inevitable increase in defense spending could increase U.S. federal budget deficits, but the Fed might face domestic and international pressures not to do so.

Fuss recalls the situation in the late 1960s, when the Fed felt compelled not to raise interest rates so the U.S. could finance both the Vietnam war and the Great Society. That ultimately contributed to the hyperinflation of the 1970s. Today there are similar parallels, but they are hardly identical. The U.S. dollar was under pressure then; now it appears to be a safe haven.

Back in February, Fuss talked about his experience running Yale University's endowment in the 1970s and told an IMCA audience that his best advice in early 2014 was "buy stocks and go to church." Now he is a little more cautious.

"The bond market has been pretty well shopped," he says. "With the stock market, you need to be more careful because everything was marching together." Now, covariances are increasing and disparities are widening in equities.

The upshot is that it is "a good time to build reserves."