The United States will not return to robust 3 percent growth until after 2016, according to a June statement from the IMF. By contrast, average GDP growth in the second half of the 1900s was just above 3 percent. This is not good news.
Now, IMF reports aren't exactly bursting forth with crackerjack surprises. They're the economic equivalent of a macroeconomic lecture from a grizzled senior professor. Reasonable-sounding, long, and vermouth dry. But this list of five big risks for the U.S. economy is worth saving for reasons I've listed below the break:
(i) Continued housing market weakness, with the possibility of further house price declines reducing household wealth and, thus, weighing on private consumption.
(ii) Unfavorable fiscal outcomes. These could take the form of a sudden increase in interest rates and/or a sovereign downgrade if an agreement on consolidation does not materialize or the debt ceiling is not raised soon enough. These risks would also have significant global repercussions, given the central role of U.S. Treasury bonds in world financial markets. At the opposite extreme, an excessively large upfront fiscal adjustment could also significantly weaken domestic demand.
(iii) Further commodity price shocks, which could impact both growth and inflation.
(iv) Tight credit supply conditions--with weak securitization markets and tight loan standards for most sectors--which may become more binding as credit demand recovers.
(v) Challenging conditions for some European sovereigns that might trigger new global financial shocks.
Most of these risk are beyond government control. Washington does not control the U.S. housing market. Government cannot force hundreds of millions of Americans to spend more money (tax breaks merely give them more money with which to spend), or compel millions of employers to hire more workers (tax breaks merely give them more money with which to hire). We cannot set global oil prices, or corn prices, or iron prices. We cannot control Europe's sovereign debt crises. They are sovereign, after all.
What can we control? We can raise the debt ceiling, and we can work on a long-run budget deal that keeps deficits high in the short term and low in the long term. And Washington is on track to do ... neither.
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