Big and Little Worries
1. Sovereign debt: Contemplating big worries, I could place sovereign debt at the top of the the list. Should we currently be concerned about Greece, Spain and other EU nations with excessive obligations? Beyond, should we be focusing on the U.K. and the U.S.? Referring to the U.S. stimulus, one article quotes Lois Lane saying, in flight, to Superman, “If you’ve got me, who’s got you?”
2. State and local debt: Within the United States, are state and local obligations unmanageable or, will the pressure to cut costs be therapeutic?
3. Exit strategy: Should the Fed’s exit strategy make you lose sleep? Is there a productive way for the Fed to diminish the portfolio it gathered when it was flooding financial intermediaries with cash through quantitative easing?
4. Inflation: Perhaps, instead, inflation looms large as the next big worry. Having deployed a massive stimulus, will inflation hit us on the rebound?
5. Housing: Housing also might make us pause. When the Fed stops buying mortgage backed securities, will potential liquidity for new construction evaporate?
6. Iran: Or, should we just think about Iran and the possibility that oil prices will soar if there is an attack on their nuclear facilities.
7. China: Maybe though, China is the big worry. Will they continue purchasing our debt?
And finally, a small worry…
Will I ever again buy tomato sauce??
The Economic Life
While people repeatedly say, “This time is different,” it never is. The market system will always be subject to business cycles. With GDP relatively high, it will hit a peak. Next a contraction will unfold, then a trough, and finally the new expansion. From Adam Smith onward, these cycles have recurred. Returning to our worry list, I suggest optimism.