The U.S. economy seems to be slowly healing and Wall Street is rallying, although stocks pulled back today and 13,000 seems a tough barrier to stay across. How could things go sideways? Let me count the ways.
1. Europe. The sovereign debt crisis hasn’t been fixed. Even Greece hasn’t been fixed. At best, European leaders and the bazooka infusion by the European Central Bank have bought time. As debt continues to reset at high rates, Germany remains at odds with the rest of the eurozone on a bailout. A breakup of the euro is still possible, with a resulting global depression. Even if the eurozone stays together, most European economies will be in recession or near-recession conditions for years.
2. Israel attacks Iran. Israel is very good at starting wars and reaching its initial goals; not so good at an exit strategy. If Jerusalem tries to take out Iran’s nuclear capability, it might set the program back for a time. But Iran might not be as passive as Iraq and Syria in the face of similar strikes. Iran has the capability to shut down oil traveling out of the Persian Gulf, causing a huge price spike and recession.
3. China. A soft-landing for this fast-growing but debt-fueled economy isn’t guaranteed. The People’s Republic faces tremendous economic and social pressures. It has also begun to back out of Treasuries, not in a big way yet but as a signal that America’s gold card might have a limit after all.
4. Lack of a reset. Check out David Stockman’s interview in today’s Seattle Times. You may not agree with all of it (I don’t, either), but the one-time Reagan budget chief makes some undeniable points. Our debt remains unsustainable, especially without historic growth levels. The toxic assets in the Fed’s basement must eventually be worked out. People keep waiting for a return to the old housing boom — it’s not going to happen. Politics are dangerously paralyzed and owned by the wealthy. We haven’t reset the economy for the future.
5. “Skynet becomes self-aware. In a panic they try to pull the plug…Skynet fights back.” No, I don’t mean the computer from the Terminator movies. I mean the systemically precarious banking system, whose risky practices brought on the Great Recession, is still in place. Instead of launching missiles, it launches lobbyists to protect itself. The result: Another disaster will happen.
And Don’t Miss: Why an MRI costs $1,080 in America and $280 in France || Washington Post
Today’s Econ Haiku:
Go on, merge away
I’ll fly Alaska
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