Monday, February 28, 2011, AM | Leave Comment
Some experts suggest the U.S. economy faces four threats, one of which is generated externally and the rest are internal to the U.S. Even the one seemingly generated outside the U.S. may have something to do with American foreign policy or maybe not. These four threats are considered hurdles on the way to economic recovery.
In a track and field race, the job of athletes is to jump over the hurdle while maintaining their running speed. They try to avoid head-on collision with the hurdle, thereby avoid injuries to themselves.
All athletes know and are trained to jump over the hurdles unless they realize on the spot that they are in the wrong sports. Their training was not yet complete when they jumped into the arena of hurdling.
They must know the height and the distance between the hurdles beforehand to be able to make good judgment and successfully finish their competition.
In the national economy, there happens to be no hurdling – no jumping over hurdles or may be there is.
The economic policy makers cannot just jump in and try to avoid the hurdles and the threats. They must face these threats head on. They cannot anticipate smooth sailing. Some threats are external while others are internal. However, because of the global economy, it so happens that the distinction between the two often becomes blurred and we cannot tell the difference very clearly.
The four threats that some experts talk about might not be strong enough to send the U.S. economy back into recession. But they surely are strong enough to slow down the recovery.
Never-Ending Rising Oil Prices
This is seemingly the external force affecting the economy. The oil prices are at $100 mark (per barrel). Sometimes during the day it’s above that. At this price, economy is still chugging along but slowly. Experts say if the price gets to be $150 a barrel or above, then the economy would get into a serious-threat-mode. One blow to the economy.
“When oil prices were ratcheting up to record levels a few years ago, unemployment was at 5%, not 9%,” David Rosenberg, chief economist with Gluskin Sheff said. “The Fed had ammunition left. There was still appetite for fiscal stimulus. There’s nothing in the cookie jar today as an offset.”
Spending Cuts by Government
Goldman Sachs said Tuesday, February 22, that Republican spending proposals which would cut $61 billion between March and Sept. 30 could reduce economic growth by 1.5 to 2 percentage points in the second and third quarters.
The “cut-talk” has concentrated on social services like Social Security and Medicare. That’s a bummer, now that I applied for Social Security. I am scheduled to start getting it the third Wednesday of next month. Second blow to the economy, one strong blow to my finances.
The Fed Stops Pumping Money Into the Economy
If you remember the Federal Reserve Bank started pumping money in the national economy at the rate of $75 billion a month. The program is due to end in June and that could reduce a key support for stock prices. Third blow to the economy.
Falling Stock Prices
The current bull market has doubled its value in the last two years. What if someone sneezed and the market came to a sudden halt. That would be the fourth blow to the economy. It seems to me not only my personal finances are always at the mercy of others but the national economy as well, at the mercy of someone’s strong sneeze. Let’s hope nobody sneezes that strong.
In the Nutshell
Can all these threats occur all at once, in the same economic breath? Sure they can. If they did, I and millions like me would lose our investments, now that we need it the most in our retirement. I have nothing in investment but millions of folks who have invested and re-invested in stocks will lose the second time around in a little more than two years.