Europe is back from vacation, American economic growth remains weak and the presidential campaign will suck all the oxygen from the room. Here are five things to watch for in the economy in the weeks ahead:
1. The European recession and political crisis will get worse. It begins with the need for the Greek parliament to approve another 11.5 billion euros in spending cuts or risk losing its lifeline from the European Central Bank and International Monetary Fund. As I’ve written before, the only real answer is an “orderly” exit mechanism for the euro or a complete write-down of the debt.
2. Europe’s recession will spread. The EU accounts for 20 percent of U.S. trade and is a huge trading partner with Asia. The slowdown there is already affecting global commerce. The big unknown: The danger to “counterparty” U.S. banks (Mr. Dimon, call your office).
4. China’s economy. It’s already slowing down and showing signs of stress from recession in the EU and weak demand in the U.S. Stephen Roach, Morgan Stanley chief economist, says the worry is overblown. Let’s hope he’s right. China and Asia have been especially helpful in Seattle’s relative recovery.
5. D.C. dysfunction. The paralysis in Washington ahead of the election will prevent two measures that could actually help the economy: A new stimulus and stopping the layoffs of government workers (Reagan hired big in the 1980s). Inflation is virtually non-existent, rates are low and countries and investors are dying to lend us money. Worse, extremists among House Republicans have rolled President Obama, making him accept the false premise that federal red ink is the biggest danger facing the country. It’s not. Joblessness, income inequality and weak demand are. So we hurdle toward a “fiscal cliff” of entirely artificial making. Meanwhile, the Fed is proving worthless.
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Today’s Econ Haiku:
Are running for the tall grass
Profiles in courage