What Could Go Wrong In 2005?

DeTocqueville once wrote, “The more things change, the more they stay the same.” In the case of the United States in 2005, the opposite might be true: the more things stay the same, the more they are likely to change…for the worse. In that regard, compiling a list of potential threats to the US as we come into the New Year represents nothing more than a longstanding catalogue of economic policy making run amok.
The same list could have been drawn up in 2004, 2003, and even the years before that. They include: the persistent and increasing resort to debt-financed growth, a concomitant and growing external imbalance in the current account (leading to an ever greater reliance on “the kindness of strangers” who keep the US economy afloat by enormous foreign lending so that consumers can keep buying more imports, thus further increasing an already bloated external trade imbalance).

All of which is occurring against an increasingly problematic Vietnam-style quagmire in Iraq, and the ongoing (and related) problem of high energy prices, which are themselves spurring an ever more frantic competition for energy security, thereby intensifying existing global and regional rivalries.

Just as a haystack soaked in kerosene will appear relatively benign until somebody strikes a match, so too it is worth noting that although America’s longstanding economic problems have not yet engendered financial Armageddon does not invalidate the threat they ultimately pose. But the key is finding out which event (or combination of them) represents the match that could set this “haystack” alight, if there is indeed one “event” which precipitates the bursting of a historically unprecedented credit bubble.

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