Monday, January 30, 2012

What could blow up the economy in 2012

As we previously blogged about, we held our Economic Outlook event last week.  The event reviewed likely global, national and local economic trends and was extremely informative for anyone who has an interest in how the economy turns out in 2012.

The consensus of the event was continued, if gradual, economic recovery in just about every sector, even the labor market.  However, according to Dr. Jay Bryson of Wells Fargo, three items have the potential to destroy the economic in 2012.  We wanted to review what those three possibilities are:

  • Increasing geo-political tensions: The entire world is a hotspot, but political and military actions have the potential to seriously hinder economic recovery.  Iran, for example, has been threatening to block off the Straits of Hormuz, and US officials have not ruled out military action to keep the Straits open.  If the Straits are blocked, however, that could drive oil up to $150 a barrel - which would be a $50 increase from where it is today.  That is not something our economy could absorb.  
  • Possible shut-down of federal bond market:  Our debt has, without question, grown sustainability over the past few years, and the time may come where investors refuse to by U.S. bonds.  However, according to Dr. Bryson, this remains unlikely in the immediate future, as the U.S. continues to be viewed as a solid investment.  This issue must be addressed in the long-term, however.
  • Europe debt crisis:  The European debt crisis "blowing up" is the item here that is most likely.  There are numerous European countries in which debt default is some level of possibility.  Greece is the country most likely to default, but other countries have that risk as well, including Spain and Italy.  Italy could cause the biggest problem - if it were to default, that's $3 trillion in debt down the tubes.  The U.S. itself does not hold a huge portion of the debt of any of these countries - but many of our trading partners do - and if these countries go down, the domino effect could hurt the U.S. as well.
So, what do you think?  Any threats that we missed?  Let us know in the comments!

1 comment:

Ashok Singh's Blog said...

The economy can increase its output by giving consumers more useable income, increase in consumption spending, and providing resources for business to use for further investment.
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