What goes up must come down

Posted: 17 February 2012 in Uncategorized
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What does up must come down—sooner or later. . .

Yesterday, stocks on Wall Street hit levels not seen since before the 2008 financial crisis. More generally, over the past few months, global equity and commodity markets have rallied based on improving investor confidence, positive macroeconomic data, and continued growth in corporate profitability. However, as Nouriel Roubini reminds us,

at least four downside risks are likely to materialize this year, undermining global growth and eventually negatively affecting investor confidence and market valuations of risky assets.

First, the eurozone is in deep recession, especially in the periphery, but now also in the core economies. . .

Second, there is now evidence of weakening performance in China and the rest of Asia. . .

Third, while US data have been surprisingly encouraging, America’s growth momentum appears to be peaking. . .

Finally, geopolitical risks in the Middle East are rising, owing to the possibility of an Israeli military response to Iran’s nuclear ambitions.

The U.S. tax system is the most progressive among the rich industrialized countries. However, when taking into account both taxes and transfers, the U.S. system does the least in terms of redistributing income or reducing inequality. Lane Kenworthy has links to the various studies of the data.

The official rate of unemployment in the United States has exceeded 8 percent for three years, the longest stretch of high unemployment in this country since the First Great Depression. The Congressional Budget Office projects that the unemployment rate will remain above 8 percent until 2014.

In CBO’s forecast, the unemployment rate remains above 8 percent both this year and next, a consequence of continued weakness in demand for goods and services. As economic growth picks up after 2013, the unemployment rate will gradually decline to around 7 percent by the end of 2015, before dropping to near 5½ percent by the end of 2017.

See, I told you, what goes up must come down—maybe, eventually, sooner or (in the case of U.S. unemployment) much later. . .

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