01/03/2014 09:32 am ET Updated Mar 05, 2014

Here Be Dragons

The phrase "here be dragons" refers to the practice of medieval mapmakers of drawing dragons to occupy parts of the world they knew nothing about. It was a clever way of warning people to watch their step in uncertain circumstances.

As we embark upon the New Year, we have the wind at our backs. The economy is growing, manufacturing is strong, housing is on the rebound, unemployment is falling and the stock market is in record territory. Recent surveys show that American consumers are in an upbeat mood. There is a lot of good news to be savored.

At the same time, there are ever and always dragons lurking in the shadows.

First, there is a very good chance the Federal Reserve will not be able to phase out quantitative easing seamlessly. I think it likely, indeed inevitable, that when the action takes hold, interest rates will rise, housing will stall and the stock market will have a major "correction."

Second, as the economy continues to pick up speed into 2014, given all the liquidity on bank balance sheets, we will see a rise in monetary velocity that history teaches us is inevitably the beginning of inflation. I know the Federal Reserve is on record in favor of modest inflation, but modest inflation is hard to find. Once the inflationary genie is out of the bottle, it can be devilishly hard to control.

Third, the budget deal may have deferred the possibility of another government shutdown, but it by no means resolved the continuing rift over government spending and taxing. There will be another showdown over the debt ceiling at the beginning of March. The Tea Party may be down but it is still very much in the game and many legislators of both parties share its concern about our fiscal situation -- as do I. We very much need a consensus, bi-partisan, long-term strategy to get our financial house in order.

And fourth, there are countless trouble spots around the globe that could disrupt international commerce and rattle financial markets -- the standoff with Iran over its nuclear program, the deteriorating situation in what was once a nation called Syria, civil strife in Iraq, the troubling tensions between China and Japan, the turmoil in Egypt, our pending exit from Afghanistan and what will happen in its wake, and the threat of terrorism.

We are like one of those early ships of exploration adrift on uncharted waters. We know there are dragons out there, but can never be sure what form they will take and where they will strike. Our leaders need to be optimistic but cautious, upbeat but aware of potential trouble spots where dragons may be lurking.


Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. January 2014