Today's Coming Crisis Movie

Wednesday, July 6, 2011

Five biggest threats to the US economy

Hopes that 2011 would see the US recovery strengthen have so far been dashed as higher gasoline and food prices erode the spending power of millions of Americans. Here are the five biggest threats faced by the world's largest economy:

The petrol station is as reliable a place as any to take America's economic pulse. The sharp rise in gasoline prices in the first few months of the year knocked the confidence of consumers, who still account for about 70pc of the country's gross domestic product.

That squeeze has been all the more painful because the majority of Americans have not enjoyed pay rises since the crisis. Indeed, inflation-adjusted average hourly earnings fell 1.6pc in the past 12 months. Like Sir Mervyn King at the Bank of England, Fed chief Ben Bernanke insists that inflation will prove short-lived.

The good news for the bulls is that gasoline prices have dropped by almost 10pc since reaching a three-year high at the start of May. While the news is improving, the Fed and The White House know their control over such a key variable is very limited. (read more)