Posted by William Neikirk at 11:32 a.m. CDT
Our country's chief economic official, Federal Reserve Chairman Ben Bernanke, certainly took away Wall Street's worries the other day when he testified before
Congress. He spun everything positively--inflation, no big deal; recession, not to worry; economic growth, pretty solid; employment, not bad. Everyone hopes he is right, but I have been covering the economy so long that I have turned into an official worry-wart.
With all due respect to the good chairman, longevity entitles me to a few doubts. So, aside from another terrorist attack, here are my top seven economic concerns:
1. Despite Bernanke's assurances that things seem hunky-dory, the housing market could collapse. It is definitely cooling around the country and in cities where prices ran out of sight. But a sharper downfall is in the realm of possibility. This could slow consumer spending, cause some bank failures, and force families who have overextended themselves into bankruptcy. Getting housing more affordable definitely would have a price. Housing bubbles don't usually go away easily.
2. Oil prices could surge and surpass $100 a barrel, a figure that Bernanke said could be very troublesome for the economy. We are just one more geopolitical crisis away from that figure. Gasoline prices are also vulnerable to another devastating hurricane like Katrina, which disabled key Gulf Coast refineries last summer.
3. We will punt as a nation and decide not to deal with the budget deficit at all. This is a fairly reasonable outcome, given our political situation. Neither party truly wants to bite the bullet, since constituents do not take kindly to politicians who practice fiscal responsibility (although folks love it when they preach fiscal responsibility). If we let the deficit get larger as the Baby Boom retirees, the extra debt burden could wilt our economy in the next two decades.
4. The Chinese or the Japanese at some point will find investing in the United States less appealing and divert more funds they've earned by selling to America in other countries. But we need these funds to finance our budget deficit and our record trade deficit, and to keep our economy afloat. Now, it's in their self-interest to keep us afloat. But a few more years of U.S. profligacy, in which we are essentially living beyond our means, could change their minds.
5. The income gap in the U.S. between the affluent and less affluent has been growing. Increasingly, there are two Americas, one with great economic security and the other with very little economic security. Bernanke says education and training are the answers and that we must become the highest-skilled work force in the world in order to close this gap. But we've got a lot of high-skilled workers who lost jobs in the high-tech wreck. There's a lot of rhetoric around this issue, but not much action by our public officials. Democracy could be hurt.
6. Household debt burdens have been rising as Americans have borrowed more heavily to keep up their standard of living. Bernanke has downplayed the growth in consumer debt, noting that it is offset by increases in assets, such as the equity in homes. In fact, many consumers have tapped these credit lines in order to finance their purchases. The central bank has been raising interest rates that will put a crimp in such practices. Even a small retrenchment in consumer spending could have a big effect on the economy.
7. The health-care system will continue to be a monster when it comes to costs and will take an increasing share of our income. The number of uninsured will grow. Prices will rise without check. Affordability will shrink. Solutions will be elusive because of political gridlock.
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Comments
Thank you, William Neikirk for giving an honest assessment of the economic situation and not that rose colored picture the Bush Administration and Fox News paints.
Posted by: Rory M | July 21, 2006 1:21 PM
Thanks for the uplifting comments as we head into the weekend.
Posted by: David Hudson | July 21, 2006 1:50 PM
If if's and's or but's were candies and nuts, you'd have a serious cavity problem billy boy. Sorry Rory, but an honest assessment of the economy does not include future predictions. Let's hold our politicians accountable by forcing them to make alternative energy the major issue of future elections. The spiraling effect of high oil costs is fairly transparent. We'd solve the majority of our economic and security issues in the US by addressing this situation alone.
Posted by: Jay | July 21, 2006 2:02 PM
Mr. Neikirk you got a ringing endorsement from that economic guru - Rory M. She's the one that needs to get a refund on her economics classes, among others.
That's all we need is a journalism major prtacticing economics. Which web site did you cut and paste your seven speaking points from? I know they weren't original thought.
But Billy boy, you forgot a few points:
Unemployment under 5%.
GDP growing at a steady rate.
The housing bubble might be slowing down, more of a problem on the coasts than the midwest. That happens with many markets. Remember the stock market in 2000?
Money will still continue to flow into the US because their aren't many other great capital options in the world. Don't you find in ironic that the ChiComs invest in the US?
Household debts are piling up - True - that comes from a society that is finanically illiterate. Thank the education system for that.
Affordable healthcare would not be an issue if people were more finacially literate. As an example, in Illinois the guv is trying to make mandatory (read gov't) healthcare for childrem with families under $70K. God forbid if these families give up their internet, cabel, SUV, etc.... to pay for their own health insurance.
Finally, these economic "problems" have been around for a few decades. Have we collapsed?
Do we really want to go back to the Nixon-Ford-Carter ecomonmies?
Posted by: Terry | July 21, 2006 7:20 PM
First let’s get one thing strait; when you refer to me it should be “him”. Now I see your economic understanding as nothing more than the Bush Administration’s view through rose colored glasses. The fact that our economy can in anyway be viewed as good is only in the investment sector. As the majority of Americans that have been living beyond their means (on borrowed money) find interest rates rising. They’ll be compelled to ether curtail spending which will have a serious effect on consumer confidence, or have to file bankruptcy. I don’t claim to be an economist, but in my 50 years I’ve seen the good times come on borrowed money and what happens when it’s time to pay the piper, and that times coming soon.
Posted by: Rory M | July 22, 2006 9:46 AM
Rory, tell that to the people who thought interest rates would never rise and took ARM's. Compare our economy to any in the world and try to convince me that our economy is in tatters as you'd like to believe. There is one reason and one reason only that our economy has slowed down, Oil. This problem would have been solved if Americans didn't let OPEC manipulate them in the late 70's & early 80's when we were making progress developing alternative energies and more efficient systems. OPEC saw our use drop and promptly increased output to lower costs. Americans concluded we no longer had a problem with oil and dropped most programs and said hello to the Hummer & Suburban. Nobody wants to hold our politicians accountable, but my vote will go to whoever makes alternative fuels & fuel efficiency a priority by promising to invest our tax dollars there. Why, especially in these times, are we not focused here?
Posted by: Jay | July 23, 2006 11:33 AM
The unemployment rate is calculated based on the number of people who are getting unemployment benefits. Once you've maxed out of that system, you are no longer counted. We can keep the 'unemployment rate' under 5% forever, no matter how many people are in fact unemployed.
Posted by: Cheryl | July 23, 2006 2:50 PM
Rory, I would have guessed you as someone in the early 20's based upon the following saying:
If you are a conservative when you are 20, you have no heart, if you are a liberal at age 40 you have no brains.
Posted by: Terry | July 23, 2006 4:21 PM
Cheryl
Your last post is just so wrong. Please see:
http://www.bls.gov/cps/#overview
for more details but the process for determining the unemployment rate is far more complex and complete than you think.
RRD
Posted by: RRD | July 24, 2006 11:28 PM