This Day On The Street
Continue to site
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

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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $110.78 0.00%
FB $94.01 0.00%
GOOG $641.47 0.00%
TSLA $246.15 0.00%
YHOO $30.85 0.00%


Chart of I:DJI
DOW 16,776.43 +304.06 1.85%
S&P 500 1,987.05 +35.69 1.83%
NASDAQ 4,781.2640 +73.4890 1.56%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs