This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Debt Super Committee Could Spoil the Holidays

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- With a rapidly escalating equity market and a 2.5% real GDP growth rate reported for the third quarter of 2011, it's clear sailing ahead for the U.S. economy. Right?

Hold on a minute. If we were to extract two unsustainable factors (the post-Japanese earthquake rebound in auto production and the decline in the household personal savings rate during the third quarter), U.S. real GDP growth in the third quarter was flat. Coming after a 0.4% first quarter and 1.3% second quarter GDP growth rate, the U.S economy is just one exogenous shock away from recession. Not so terrific. Actually, any one of a number of risks could spoil the upcoming holiday season for the U.S. economy:

1. The U.S. consumer remains overleveraged, is working fewer hours, and is earning lower real wages over the past year.

2. The housing market remains severely depressed and actually impedes labor mobility, thereby further worsening an unemployment rate that has been near or above 9% for 31 consecutive months.

3. The European debt crisis and resulting recession will negatively impact U.S. economic growth as well as emerging markets' growth.

4. China's credit-driven rapid economic expansion is slowing, and the Chinese government must now delicately avoid a "hard landing" despite the weakening of its European export markets.

5. Middle East unrest persists and could lead to higher oil prices.

6. The U.S. Joint Super Committee may fail to address the structural issues underpinning the high U.S. debt level, thereby undermining investor confidence in both politicians and the economy.

7. Fiscal policy initiatives to stimulate an economic recovery are hamstrung by a bitterly divided Congress.

8. Monetary policy initiatives to stimulate an economic revival are untested and may lead to severe unintended consequences, thereby potentially limiting the Fed's willingness to implement them.

To be clear, the Federal Reserve is optimistic about forthcoming U.S. economic growth despite the gloomy list of worries above. The Fed expects the change in U.S. real GDP to be 2.5% to 2.9% in 2012; 3% to 3.5% in 2013; and 3% to 3.9% in 2014. Of course, those projections have been meaningfully reduced from the Fed's previous forecasts in July. Moreover, the Fed sees the unemployment rate hovering at 8.5% to 8.7% in 2012; at 7.8% to 8.2% in 2013; and at 6.8% to 7.7% in 2014. Not exactly a robust economic renaissance, and the Fed acknowledged that the risks remain elevated to the downside in their forecasts.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs