World Economy At The Tipping Point?

Dec 22, 2011 by

The European debt crisis has sparked debate that the world economy has reached a tipping point.  In 2009 and 2010 we worried about the consequences of a declining US economy and it’s ripple effect on the world.  Things have degraded since then and we’re now seeing the Asian economies begin to slow which leads me back to the question I’ve always had.

What is going to change that will quickly bring these economies back?

You read and hear about things “turning around” for these huge economies.  However, I fail to see what is going to bring about this change so quickly, especially in the US.  Let’s review the leading arguments:

1) Jobs

You hear it from the GOP candidates throughout the debates.  We have to create jobs.  Who is going to create these jobs?  The government?  They are hardly in the position to do that.  Big Corporations?  They have shareholders to answer to and adding more operating expense while revenues are decreasing will not help share price (which means they won’t do it).  Small Businesses?  That doesn’t seem likely as very few are growing and certainly not hiring.  So where will they come from?

2) Tax Cuts

Many of GOP candidates are touting tax cuts for both individuals and corporations as the key for getting the economy going again.  Obviously, these cuts impact the revenues for the government and only work if you reduce the size of government.  Honestly, I don’t think the GOP can win come November so I really think this one is off the table.  On the flip side, the Democrats plan to tax the wealthiest of Americans but experts have said this will not cover the current spending.

3) Real Estate

Each month for 3 years now someone is calling a bottom for the real estate market.  Yet, month after month goes by with more bad news.  Recently it was reported by the National Association of Realtors that they have miscounted the last 5 years of existing home sales and sales were actually WEAKER than people thought.  So, again what exactly is going to change to get people buying homes again?  Unemployment at a high, foreclosures at a high, cost of living/inflation rising.  Even with interest rates below 4% (on a 30 year), who is going to risk buying a home now or in the near future?

There have been other ideas/theories for kickstarting the economy but those will clearly have a minor impact.  I’m all ears if anyone can tell me what will change to turn things around.  Please post your comments below.

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