Sydney: The Fed recently said that interest rates will be frozen for two years so there is no real threat there. The two big threats are oil prices and the economic situation in Europe. If Iran blocks the Straits of Hormuz, our oil supply will be massively reduced and the oil price will obviously skyrocket.
The other possibility is that the Europeans are unable to sort out their economic problems, particularly in relation to Greece. If things go pear shaped in Greece there could easily be a domino effect bringing down economies in a number of European countries. This would have at least a moderate, and more likely major, impact on our economy.
Michigan: Our country is in bad shape. The biggest problem I see is putting people back to work. When people are working the economy prospers. We have lost most of our manufacturing jobs and we can never regain them. A very large portion of our food is now imported. Foreign auto makers are taking over the market. We rely on foreign oil. We Americans have grown fat, lazy, and greedy. We thought the prosperity would never end. We allowed our politicians and still do to do whatever they want. Government got way to large. Credit was granted to everyone. Houses got larger and financing was a joke. I think everything relies on getting people back to work and the using our heads a little.
RMC: I think the economy is still very weak and susceptible to both continued downward pressure in the housing market and potential increases in oil prices. The banks haven’t resolved the troubled loans to a satisfactory conclusion, and I suspect there’s going to continue to be additional foreclosures and downward pressure on prices. Demand for goods and services is steady but not really growing all that much or at least not enough to signal a full recovery. Unemployment is probably going to remain high for the foreseeable future. A lot of the jobs lost over the last few years just aren’t coming back. Businesses have learned to do more with less in terms of labor.
It appears that interest rates are going to remain at historic lows for the foreseeable future, which doesn’t really help unless banks are going to be lending money. If consumers can’t get loans, they’re not going to be buying cars, houses, etc. The accommodative monetary policy may have some inflationary effects down the road if the Federal Reserve isn’t careful. In the short-term I don’t think that’s a problem.
I remember last year we talked about this and the biggest concern was and still is the uncertainty created by Obamacare for businesses. This programme is a massive albatross around the necks of businesses who aren’t going to do any hiring if they have to foot the bill for employee health care costs. Until this issue is resolved at least in the minds of the employers, I don’t think we’re going to see much hiring and expansion of businesses.
Continued overregulation by the federal government with agencies like the EPA are definitely inhibiting economic growth. It doesn’t look like the Keystone Pipeline is going to go through. That would have created tens of thousands of jobs. I think there’s a general malaise with the sitting administration. It appears businesses are just taking a wait-and-see attitude. If Obama is re-elected, we may be in for four more years of stagnation. If someone else is elected, confidence might get a boost and we might see some uptick in economic activity.
Continued budget deficits and how that may impact the borrowing capacity of the U.S. could have negative ramifications for the economy long-term. But look, oil prices are probably the biggest short-term factor. There is continued instability in the Middle East, and we just don’t know what’s going to happen in some of these oil producing nations. If there are any type of supply disruptions or embargoes, the price of oil could spike and cause gasoline price to rise. That would have a major negative effect on economic growth at a time when the economy is still shaky.
Cartwright: We’re in a particularly unique time. I think the economy is going to start to recover at a slow pace, but it’s going to be a jobless recovery. Businesses have learned to do more with less, so a lot of the jobs lost over the last few years probably aren’t coming back. If you have a job, you’re probably doing okay. If you are unemployed, it’s a very challenging time. A lot of people are struggling like that.
There are a few of things holding back demand and businesses from spending.
First, as we’ve talked about earlier and over the last year or so, Obamacare is a huge, looming uncertainty that places a tremendous burden on businesses. It’s sad when a lot of small businesses, mom and pop establishments, are considering whether it will be worth staying in business or not if they have to foot the health care coverage for employees. If we can remove that uncertainty, and I don’t think we’ll be able to do that, it will start to boost business confidence and investment.
Second, we need to get the federal government’s finances in order. That alone is creating uncertainty regarding future tax rates and the impact on the economy. The extension of the Bush era tax cuts is set to expire, creating a huge tax increase for taxpayers. The tax rates will revert to their higher levels, so in effect the taxpayers will be paying more money in taxes. This creates a degree of uncertainty.
Third, the housing crisis is still weighing heavily on the economy. The banks haven’t even begun to work through the foreclosures and underwater mortgages. I’m not convinced that we’ve seen the worst of the financial and banking situation. Housing markets are going to get worse before they get better.
Fourth, businesses and investors seem to be in a wait-and-see mode, a holding pattern, due to the presidential election in 2012. I think we’re going to see people holding off on a lot of things until after the election next November.
But overall I think we’re going to see some signs of improvement, though I think that is a false sense of security. Look, if nearly 400,000 people sought unemployment benefits for the first time last week, we’re talking about 1.6 million new people going to get unemployment each month. That’s nearly 20 million people annually. Couple this with the people who are counted as unemployed then add in those who have exhausted their benefits and we’re still well over the 10% unemployment level. The headline numbers are just deceiving and subject to manipulation. This is a real problem. And what happens when the troops come home from Iraq and we don’t need them anymore? How many of those are going to end up unemployed? I suspect there may be an uptick in the headline unemployment numbers.
There are some risk takers out there who are using this period of slow growth to find opportunities that truly do exist. There are a lot of goods deals out there, and there are a lot of opportunities for entrepreneurs to buy businesses at depressed valuations, invest in their own enterprises, and so on.