Symposium 2010: What do you perceive to be the biggest threat to the U.S. economy—inflation, interest rates, oil prices, etc.?

Oil prices are obviously that great unknown factor that can dramatically impact economic performance. Interest rates are at historic lows and will likely remain that way for the foreseeable future. Of course, having said that, there is only one way for rate to go at this point and that is up, so we need to be cognizant that cheap money is a transitory factor that is going to go away in the future. 

The possibility of inflation does cause some concern. The Fed has pumped a lot of liquidity into the markets the last few years. At some point, it is bound to manifest itself in inflationary trends. I think we’ll see inflation in the form of a slow creep as opposed to a sudden jump, but the impact on prices at the consumer level is the same or worse.

I really believe the biggest threat to the economy is overregulation by this Administration and Obamacare. After the BP Gulf disaster, drilling stopped. The Administration really clamped down on drilling in the Gulf and rode this anti-oil wave after the disaster to slow down drilling in general. I’m really surprised oil and gas prices aren’t much higher than they are. The world runs on oil; that’s just a simple fact. There’s no cost effective replacement at this point. If there’s a supply shortage, oil prices are going to spike, gas at the pump will rise, and it will retard any economic activity.

On the second point, not to beat a dead horse, but Obamacare is a colossal looming liability for businesses and taxpayers that is creating huge uncertainty. As I commented before, businesses are not going to hire and expand as long as this is out there in its current form.

Finally, I’d say the federal deficit and debt are a massive risk to the long-term economy. If we just keep borrowing to pay the bills without making any cutbacks, we’re doomed to failure. We’ll be like these banana republics. Our monetary system will fail, the Fed will attempt to monetize the debt, and no good will come from this. The more we borrow at some point the investors in Treasuries are going to want a higher interest rate for the risk.

We’ve got to control the federal spending, balance the budget, ease regulations on business, and repeal Obamacare. We’ve got to create conditions that are favorable for businesses to risk their capital here. They will create jobs so long as they can get a return on their investment. If businesses can’t do that, they’ll go somewhere else. There’s plenty of cheap labor throughout the world in places that are less regulated and don’t require the burden of a mandatory healthcare system forced upon the business owners.

These are a few things that are both short and long-term issues. The Social Security and Medicare programmes are the biggest risks to the U.S. economy for the long-term. If something isn’t done, they will bankrupt us. We need to start looking at ways to reform the systems and improve them so that they are financially sound for current retirees and the baby boomers. That is inevitably going to necessitate some tough choices for future generations in regards to what the programme should look like for younger people. There were overtures to address this in the Bush administration but it didn’t get any traction. We need to keep this on the radar and start having some honest discussions about it. Sadly, people don’t like to do that because they’re afraid of what you’re going to tell them. They don’t want to hear it if it is bad. This is a pretty big issue and a serious one that probably has more long-term consequences than most of the other issues we’re discussing.

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