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Some Economic Cheer, Some Worries

12:00 AM, Jan 8, 2011 • By IRWIN M. STELZER
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Another worry is the impact on financial markets of the continued failure of the leaders of the eurozone to come to grips with the inability of Greece, Ireland, Portugal and Spain to pay their debts. If their eurozone partners don’t develop a mechanism to assure markets the disease will be contained, the infection will spread to the international banking sector. The hope is that the powers-that-be in Europe will ignore French president Nikolas Sarkozy’s call to spend time figuring out how to use the G20, of which he is this year’s chairman, to replace the dollar as the world’s reserve currency, and instead follow the advice of UK chancellor of the exchequer George Osborne to “stand more convincingly behind the euro,” reform labor markets, get the deficits under control, and strengthen Europe’s shaky banking system. Like Britain, a non-eurozone country, America has a stake in the stability of that 17-country bloc.

Then there is the possibility that our politicians will focus their eyes on the 2012 presidential elections rather than on the burgeoning deficit. Things looked brighter at year-end than they do now. President Obama, buoyed by gains in the lame-duck session of Congress, is working hard to antagonize Republicans by making recess appointments they find offensive and having his regulation-writers revive federally funded doctor consultation concerning pulling tubes and plugs on very ill patients. On the other side, the Tea Partiers who have come to town are pledged to let the nation default on its IOUs when it hits the debt ceiling unless the president agrees to substantial spending cuts. This demise of bipartisanship matters mightily since it will take a bipartisan deal to bring the deficit, now adding $100 billion per month to America’s debt mountain, under control. Perhaps reports of the death of bipartisanship are premature. Let’s hope so.

Finally, there are so many possible conflagrations that it is almost Panglossian to assume none will light the skies in 2011. The Iranians are poised to get the nuclear weapon with which to excise what they call “the Israeli cancer” from the Middle East, and the Israelis are determined to prevent that from happening or to retaliate in kind. The North Koreans might underestimate the new determination of the South Koreans not to be bullied. Islamic terrorists might gain control of the Saudi oil fields, or Pakistan’s nuclear facilities. Conjure your own horror – any one would make hash of current economic predications.

So enjoy the new, cheerier economic news, at least for now, but avoid joining the euphoric herd. Remember, these forecasts are not very different from the forecasts made at the beginning of 2010. And they proved to be wishful thinking.

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