Why the economy could still tank in 2012
After the elections, Congress will have to make some momentous decisions about taxes, spending and extending the nation's borrowing limit. Missteps could be disastrous.
Hey, did you happen to see where the recovery went?
For a while there, it looked as if jobs were returning, the housing market was close to bottoming out and consumers were growing more confident about their own economic outlook. But then came a disappointing jobs report, a three percent stock market correction and renewed fears that the recovery would fade.
Many economists feel the choppy nature of the recovery, which officially began in 2009, is normal given debt problems that still exist and other aftershocks from the recession. In that view, markets will remain volatile, but continue to gradually improve.
But there's still plenty to worry about, and the lack of transparency on several big problems makes investors jumpier than they might otherwise be, causing mood swings in the stock market. Here are five things that could still go wrong with the economy:
Weaker earnings at U.S. companies. Big firms have been a bright spot in the economy, with strong profits coming from stringent cost-cutting, low interest rates and other factors. That rosy period may now be ending. Earnings at S&P 500 firms grew by 14 percent in 2011, according to Briefing Research, but are estimated to have grown just three percent in the first quarter of 2012. That's largely because there are no more easy cuts to make, and earnings are now being compared to healthier numbers from a year ago.
Earnings at U.S. firms directly affect hiring, spending plans and consumer confidence, so weaker earnings could foretell a slower recovery. As first-quarter earnings reports come in over the next several weeks, investors will cheer if firms exceed modest expectations. But lackluster earnings will deepen worries about the economy.
A deeper European recession. Aggressive maneuvers by the European Central Bank have forestalled the financial crisis many investors dreaded, but Europe's economy remains fragile and prone to shocks. Europe could muddle through 2012 without a deep recession, but austerity budgets in many countries leave little room for error.
Those debt problems dominating financial headlines aren't over, either. Investors have begun to fret anew about Spain's solvency, which is forcing the European nation to pay higher rates on its debt. Beyond that, Moody's Analytics predicts that Portugal may need a second bailout by 2014, and Greece a third one by 2015.
A Chinese meltdown. China has an overheated property market, an opaque banking system and an overdependence on exports to troubled regions like Europe. Chinese ministers have been adept at navigating through such shoals, but any problem that pushed China's economic growth rate below eight percent could reverberate in other markets.
A further spike in oil prices. This is a binary story, centered on Iran. If the standoff over Iran's nuclear program escalates, worries about oil supplies will intensify and prices will rise. Oil prices, which have been hovering between $100 and $110 per barrel, would probably have to hit the $125 mark before it would threaten another recession. If there's some sort of détente with Iran, by contrast, it could deflate oil prices and boost the economy.
A debacle in Washington. Nothing major is likely to happen in Washington before the November elections, but right after that, Congress will have to make some momentous decisions about taxes, spending and extending the nation's borrowing limit. Missteps could be disastrous for the still-fragile economy. Some political analysts point out that feuding legislators tend to pull together for the public good at the last minute. But business leaders and investors have their doubts. And for now, their votes count the most.
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I've been posting this for years- this economy is done-finished. First all the jobs disappear, then there will be food shortages. Most Americans will be broke and hungry, which means you will be nothing more than slaves at the mercy of the government. What a hellish future we have to look forward to.
This is what happens when people get fat, dumb and lazy and allowed this to happen over time.
We've been "kicking the can down the road" for years. This country has only been able to do that because it prints and prints and prints inflated dollars. I believe Washington has simply figured out that as long as the lower and middle class is buried in the details of trying to make a living, we'll be too occupied to demand our government be held accountable. These guys make great money, have incredible benefits, and retire with pensions regardless of how poor they perform. Its really unbelievable what a great sham they can get away with.
As the collapse worsens and many more are suffering, I predict calls for criminal charges of congressional members who have taken us where we are - and rightfully so.
They are not stupid - they did it knowingly.
It's not that complicated. The so-called recovery was a talked up mainstream media myth with a Fed supplied temporary sugar high. Remember the "recovery summer" that also went nowhere?
Whoever wins in November, won't change the outcome of a failed stimulus combined with health care legislation that scares employers from hiring.
Until jobs come back, housing and the consumer can't fully recover.
Food stamps don't go far for the record amount of people on them, and the rest of us not on them are dealing with stagnant wages and/or reduced hours.
The miscalculation was the focus not being on jobs from the start. Passing health care was not only historic, but a historic blunder. It's important, but wasn't the first priority.
For this the administration and congressional majority at the time still risk being held responsible.
It is sad that oboma keeps spending money like it is water. he has spent more than the last 10 presidents combined. he is ruining this country and yes. it will fall. and yes it will be because of what oboma is doing.
the only hope if there is one at this point is oboma must be romoved from office. voted out.. government spending has to be stopped, it is out of control.
it is our only hope.
the greed in this adminstration is sad to watch. ruining people future and the American dream to line his own pockets. very very sad.
The economy should have been allowed to correct, instead these idiots thought pumping trillions into the economy would avoid the problem. Stupid liberal Keynesian economics fails again.
Now the economy still has to correct yet we are trillions farther down the hole. When this thing crashes it will be far worse than 2008, perhaps worse than the depression itself.
Unfortunately, the longer it goes on, the worse the pain to correct it, so the less likely anyone will stick his neck out for a real solution. The most damning thing democrats did was demonize Ryan's plan. Thanks to their playing politics with our future, we are less than a decade from Greece and no one will dare put forth anything to stop it.
With obama record, why has there been no impeachment hearings? Any other president that pulled the same crap he has would have been thrown out of office by now.
People need to start seeing through this guy, and what a disaster he is. We just can't continue to let the go.
I am not sure we can hold out until November.
limits of a growth-based economy and that's why this recent recession is a lot different than past recessions. Despite conventional thought,
growing energy production/use and resource consumption can't continue indefinitely. Don't have faith that the stock market will continue to
grow on a long-term basis.
Some suggested reading for those uninformed about peak oil/end of
The End of Growth, by Richard Heinberg
are avoiding the truth of the deeper mess we're in, and the truth about our energy predicament.
I hope the economy does collapse about the time I have to refinance the mortgage on the farm! Much better rates!!
More seriously, anybody that doesn't believe another collapse is coming at some point is a fool...
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Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
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