America’s economy: The boom this time

Posted: January 21, 2013 in economy
Tags: , ,

IT IS a holiday in America and inauguration day (ceremonial, anyway) and as good a time as any for reflection on what might be ahead for the American economy. Bill McBride has two good posts laying out a case for optimism and spotting possible sources of recession. I suppose I’ll add my two cents.The case for cautious bullishness on the American economy is strong. For the moment, it looks as though America will avoid a damaging fiscal showdown and a major fiscal policy contraction, both of which were considered major threats to the 2013 outlook. This isn’t a sure thing, but the outlook is much better than it was a few months ago. Meanwhile, several key cyclical drags on the economy are in the process of switching to positions of support: state and local spending and investment and residential investment. Foreseeable external threats—euro collapse and a hard Chinese landing—seem less worrying now than they have over the past two years. American households have made significant progress deleveraging. Perhaps most encouragingly, the Federal Reserve continues its evolution toward a policy of explicit “catch-up” toward the pre-crisis path of the price level and/or nominal output level. We’ll have to see exactly what amount of catch-up the Fed is prepared to tolerate, but some is better than none, which is what appeared to be on offer a year or two ago.As a result, I think it’s …

via Economic Crisis


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