Is a financial crisis brewing?
*The Wall Street Journal, by Jon Hilsenrath & Nick Timiraos, August 17, 2015
”As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive.
Money has been Washington’s primary weapon in the decades since British economist John Maynard Keynes proposed aggressive government spending to battle the Great Depression. The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending.
Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers.
Few economists believe the U.S. is near recession. The economy seems to have regained its footing after a first-quarter stumble, and Federal Reserve officials are considering whether to raise short-term interest rates for the first time in nearly a decade to ensure the economy doesn’t overheat.
Even so, looming threats are a reminder that the slow-growing global economy is just a shock away from peril. Japan’s economy contracted in the second quarter and Europe recorded lackluster growth. China’s slowdown, meanwhile, appears more severe than global policy makers initially realized and a currency devaluation there might spur trade frictions.
With the U.S. expansion entering its seventh year, policy makers are planning how to respond to the next downturn, which history shows is inevitable. The current expansion is now 16 months longer than the average since World War II, and none has lasted longer than a decade.
‘The world economy is like an ocean liner without lifeboats,’ economists at HSBC Bank wrote in a recent research note.”
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