Look, I don't want to raise your anxiety level, especially as you're nursing that headache from last night's revelry. But I figure you'd want me to give it to you straight, starting out the new year by cataloging a few of the risk factors in play, economically speaking.
Europe: As the countries of the Eurozone continue to slowly and bumbly work through their debt problems, contagion remains on everyone's list of things to worry about. The contagion channel is mostly through financial markets, though the fact that the EU is the recipient of about 20 percent of our exports means that an export-dampening recession will hurt too.
How much hurt? The researchers at Goldman-Sachs provide the figure below. Europe could subtract around a point from real GDP growth next year. That's half-a-point higher unemployment, hundreds of thousand fewer jobs, etc... and those are some headwinds we really don't need right about now.
But what's noticeable in the figure below is the wide-and-getting-wider error margin around their best guess.
So, which way might this bounce? I wouldn't be surprised if the right answer is the less-bad part of the shaded area in the figure. One key to the resolution here has been the ECB accepting their role as lender of last resort, ramping up the loans to member banks, who can then buy sovereign debt, leading to lower yields, and ultimately, the ability of the troubled countries to service and rollover their debts without cracking up.
What changed? That summit a few weeks back, which many said didn't deliver much, actually appears to have moved the ECB. By agreeing to put restrictive fiscal measures in their individual constitutions, as opposed to the over-arching -- and ignorable -- rules of the Maastricht Treaty (fiscal rules that Eurozone members were supposed to adhere to, though virtually none did so), the central bank appears to have been mollified. I'm not saying that's good policy -- such rules can lead to damaging, austere macroeconomics, though of course it's not clear the new rules will work any better than Maastricht.
But what matters now is that they've helped get the ECB back in the game, so mark this one down as a real risk factor, for sure, but one with perhaps less downside risk than the conventional wisdom would suggest.
Oil: On the other hand, you don't hear enough about this one. Global supplies are tightening, and under those conditions, it doesn't take much at all to generate a price spike. The GS folks have a figure on that too, showing global production catching up to global capacity.
My gut is that there's downside risk here. Most people's paychecks are already lagging inflation -- i.e., falling in real terms (see penultimate graph here) -- and faster inflation due to a spike in oil won't help.
Labor Force Participation: This one's a sleeper and much less discussed. It's a mixed bag, but here's the concern.
One reason the unemployment rate has fallen as much as it has -- and it hasn't fallen enough -- is because fewer people are in the job market looking for work (remember, you're not counted as unemployed if you're not actively looking). If the pace of job growth begins to improve, that's likely to draw these sideliners back into the game, and that puts upward pressure of the unemployment rate.
Like I said, it's mixed, because the scenario I'm describing includes faster job growth (good) but higher unemployment (bad).
I've crunched some numbers on this -- I'll post the analysis later, maybe -- and I found that if the pace of recent job growth continues, around 130K per month over past six months, the rate of labor force participation might stop falling, but would probably remain flat. But if we start hittin' it in the 230K range, it should start to grow, making it tougher, even with extra job growth, to bring down the unemployment rate.
I've left off the biggest threat of all -- irresponsible policy makers ignoring all of the above, and failing to do their jobs on the economy, either because they'd rather hurt the President than help working families, or because they simply don't get the need for more temporary stimulus...or because they do get it, but irrationally fear budget deficits. As I've said ad nauseam, it's not the temporary stuff that hurts you on the deficit.
Of course, there's the possibility that during the holiday break, the scales have fallen from their eyes and they now understand the Keynesian imperative of the moment. For odds on that possibility, see here.
Didn't the writer hear that this International Crime Syndicate was FINED $550 Million by SEC over misleading investors in 2008.
Didn't the writer hear how Goldman sold CDO's and then bet/profited from their failures with only 1 employee being thrown under the bus?
Didn't the writer hear how Goldman paid a $60 million fine to Massachusetts where they had promoted "unfair" home loans in that State?
Didn't the writer hear how Goldman tried to install their Director Friedman in the NY Fed spot?
Didn't the writer hear of the Paulson/Blankfein "pillow talks" during the AIG bailout?
Didn't the writer hear of Goldman scoring $12 billion from the Federal Reserve over CDS contract manipulation during the AIG bailout?
Didn't the writer hear how Goldman did a CDS on the Greece National Debt then "cooked their books' to hide their debt?
Now there is a source the Writer pulls his first Graph from!
And I haven't even gotten to JP Morgan/Exxon's 2012 "$200 Oil Spring Surprise"!
A Nobel Economist Says Globalism Is Costly For Americans | Foreign Policy Journal
"Offshoring has destroyed the economy
by Paul Craig Roberts
June 1, 2011
These are discouraging times, but once in a blue moon a bit of hope appears. I am pleased to report on the bit of hope delivered in March of 2011 by Michael Spence, a Nobel prize-winning economist, assisted by Sandile Hlatshwayo, a researcher at New York University. The two economists have taken a careful empirical look at jobs offshoring and concluded that it has ruined the income and employment prospects for most Americans.
To add to the amazement, their research report, “The Evolving Structure of the American Economy and the Employment Challenge,” was published by the very establishment Council on Foreign Relations.
For a decade, I have warned that US corporations, pressed by Wall Street and large retailers such as Wal-Mart, to move offshore their production for US consumer markets, were simultaneously moving offshore US GDP, US tax base, US consumer income, and irreplaceable career opportunities for American citizens.
Among the serious consequences of offshoring are the dismantling of the ladders of upward mobility that made the US an “opportunity society,” an extraordinary worsening of the income distribution, and large trade and federal budget deficits that cannot be closed by normal means. These deficits now threaten the US dollar’s role as world reserve currency..."
The Serenity Prayer also comes to mind:
"God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.
Living one day at a time;
Enjoying one moment at a time;
Accepting hardships as the pathway to peace;
Taking, as He did, this sinful world
as it is, not as I would have it;
Trusting that He will make all things right
if I surrender to His Will;
That I may be reasonably happy in this life
and supremely happy with Him forever in the next."
-- Reinhold Niebuhr
The pain spares no one but the end result is a rebirth.
Shall we just get right to the hyperinflation...is it time yet? Or do we just continue to squeeze the rocks dry?
Our corporations sent some 20% of their factories to China because of their currency devaluations which made everything at one point 80% cheaper or 5 for the price of 1 now around 50% cheaper.
We are stuck because the US corporations who are manufacturing in China and importing their products into the US won't build factories in the US as long as they can get such a good deal from China and competitors won't attempt to build factories in the US and compete with those cost disadvantages.
All of our major trading partners and 140 countries in all have a value added tax(VAT) of around 20% on imports to help protect their domestic manufacturing and jobs which is legal and suggested under the WHO but that would hurt the US companies manufacturing in China.
If that potential nightmare becomes widely understood fast enough, and results in wise action to prevent the worst, it has the potential to sharply boost the economy here and in Europe and everywhere else on the planet.
See www.aesopinstitute.org for an overview of the problem as well as what might be done to minimize the impact.
Since this is an external threat, and external threats tend to unify, it might change the political landscape both here and in Europe.
And the necessary spending to protect many millions of lives can be the missing shot in the arm for our economy and the Eurozone.
http://www.bloomberg.com/news/2012-01-02/manufacturing-grows-in-india-china-as-most-of-europe-struggles-economy.html
China, India Manufacturing Grows as Europe Struggles- Bloomberg
"Manufacturing expanded in India and China in December, indicating Asia’s fastest-growing major economies have so far withstood the fallout from Europe’s sovereign debt crisis.
India’s manufacturing grew at the fastest pace in six months, stoking inflationary pressure, and a Chinese manufacturing gauge rose by more than economists expected, suggesting that a slowdown in the world’s second-biggest economy may be stabilizing. In the euro area, output fell for a fifth month though the rate of decline eased slightly from November..."
o manufacturing in Asia with pollution so bad it reaches the U.S. West coast's rural areas.
o manufacturing in the U.S. with an effective EPA.
http://articles.latimes.com/2010/jan/21/nation/la-na-ozone21-2010jan21
Winds carry Asian smog component to Western U.S., study finds - Los Angeles Times
And there all living high on the hog. Regarding our only whistleblower-Bradley Birkenfeld- "If he had kept his mouth shut and his head low, Bradley Birkenfeld would be a free man today"
America is done. It is time to start shopping for the new America, the new land of freedom...
The new America does not exist. It will be built upon the ruins of the old.
It is just human nature to delay and deny until self-destruction is upon us.