The Economy Wants to Turn Up - Global Debt Crisis May Have the Veto

There is a lot of evidence that business is improving. Employment trends are improving, exports improved, retail sales improved and none of that was predicted four or five months ago. To some extent, this is what America does. 

There are millions of young people who want to get on with their lives and establish a household. Car sales have been running millions of cars a year behind the trends of the previous decades and the demand for new more fuel efficient cars is huge. Entrepreneurs by the millions in this country strive every day to build a business, improve a product or find a new and better way to do things. No wonder the economy seems like it wants to grow. 

The line up of threats to this scenario are daunting, however. Over the next couple of months, Europe will have to come to grips again with a crisis it may not be able resolve. Greece may fully default in March, while other indebted countries in Europe may have trouble financing their bonds. If Europe unravels, the spillover here will be substantial. There is also a risk of conflict with Iran and a spike in oil prices. 

Meanwhile, the US is still forecast to have a Federal deficit of over $1 trillion in 2012. Another year or two of that and we may be in debt crisis too. 

The business cycle wants growth and increased investment. The debt cycle wants productivity, reduced government spending and austerity. Which trend will prevail?