Mark Zandi, chief economist at Moody's Analytics and author of "Financial Shock," 
is positive on the U.S. economy through the end of 2011 but cites 4 worries : falling home prices, inflation in China, continuing European debt problems, and State and Local government finances.Of course, another one can be added at this point: oil price shock and a global economic impact from unrest in the Middle East.
It seems to me that the housing market is more important to the economic recovery than is generally realized. The building of houses can't be outsourced overseas, and carpenters don't need a college education. One of our national past times is whining over the lost ability in America to get a good job, put two cars in the garage, and raise a family without having to get a college education.
Well, home building is an area where this possibility still exists. I guess it would be cynical to suggest that policy wonks understand this well and looked the other way as mortgages were made to those who couldn't afford them several years ago - all for the sake of short-term economic growth.
In terms of Zandi's list, the China inflation issue is the most worrisome to me. The others, I believe, can be muddled through. The inflation issue, however, could cause a global slowdown if China steps on the brakes too hard. A fact of economic life that is gradually dawning on us is that we now live in a world where we are greatly affected by another rising economic super power.
If you had to rank these problems, which do you think would be the biggest threat?
ReplyDelete@Shawn I think China's inflation problem is most critical because we can't be sure how they will respond.
ReplyDeleteYou make a very good point about home building being a occupation that can't be outsourced.
ReplyDeleteIt would be sad if housing doesn't pickup.
@MoneyCone Agreed on housing as long as it picks up legitimately :)
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