It’s been a bumpy couple of years for the US economy. In 2020 we had the pandemic and all the government’s panic measures to slow it down, which saw the first fall in per capita GDP since the global financial crisis in 2008.
That eventually ended, despite some states trying to keep businesses closed and us stuck in our homes for as long as possible, but the pandemic dealt a massive blow to our economy.
It wasn’t much of a surprise that, as life started to return to normal, inflation started to rise fast. Then, on top of that, gas prices shot up too, reaching an all-time record in summer 2022.
There have definitely been times when it looked like the US was wobbling on the edge of an economic abyss, and a collapse seemed like a real possibility.
Everything’s fine now, though, isn’t it? Inflation is half what it was a year ago. Gas prices are high, but nowhere near as high as they were last June. Can we all relax, stop stockpiling food and ammo, and turn the vegetable garden into a flowerbed?
Not so fast.
The economy has bounced a little, but there’s no guarantee it’s going to keep on improving. In fact there are some red flags that suggest we could be facing more economic problems, even worse than the ones we’ve been through since 2020.
Inflation Is Creeping Up Again
According to the government’s July report, year-on-year inflation was 3.2% in the twelve months to July 2023.
That’s higher than it’s been for most of the last 40 years, but a long way below its terrifying peak of 9.2% in June 2022.
Unfortunately there are signs it could be heading up again.
In fact even the official figures show a slight upward tick from June’s 3.0%, and the reality could be a lot worse.
Although grocery prices are rising more slowly than they were the cost of energy is still high, and that tends to force up the price of everything else.
The post-pandemic recovery is overheating, too; GDP grew by 5.6% in the third quarter of 2023, pumping more money into the economy. Over-fast growth almost always fuels inflation.
Former White House economist Kevin Hassett is pessimistic, and thinks another wave of inflation is on its way.
The Fed Fears Recession
If high growth risks bringing inflation back, low growth would be bad for a host of different reasons – and the Federal Reserve seems to think the present economic surge isn’t going to last.
While they admit last year’s predictions of a recession were wrong, they’re less optimistic about the longer term.
Recently they’ve downgraded their predictions for growth from an annual 2.5% to 1.8%. That seems strange, considering the economic boom in the third quarter, but that’s what they’re saying.
Ironically the thing most likely to cause a recession is the Fed’s own policies. In their drive to cut inflation they’ve pushed interest rates to their highest level in more than 20 years, leaving millions of Americans struggling to pay their mortgages.
If there’s a sharp rise in repossessions people aren’t going to be happy, and with the country as angry and divided as it is now that could give our social stability a hard knock.
Debt Is Out Of Control
Kevin Hassett thinks the current administration is borrowing and spending crazy amounts of money. Many other economists agree.
The federal government is rapidly building up an already huge pile of debt.
At some point, all the money the IRS collects in taxes will be needed just to cover the interest on that debt; at this point, the idea of ever paying off the debt itself is a sick joke.
Republican lawmakers are trying to slow down the administration’s wild spending, which is why the threat of another government shutdown is looming.
Up to now these have always been ended by a compromise that lets the government borrow some extra money, but GOP patience is running out and House Speaker Kevin McCarthy is losing control over his own party.
There’s a real risk that the federal government might not be able to pay its employees. That’s going to leave millions of very unhappy people – many of them armed.
We Could End Up At War
The war in Ukraine shows no sign of ending anytime soon.
And the US is slowly being dragged deeper into it.
Ukraine, understandably, wants advanced western weapons to beat back the Russian invaders.
Whether or not helping Ukraine is the right thing to do – and it’s hard to argue the country doesn’t have a right to defend itself – there’s always a risk that if Russia starts losing badly enough they’ll lash out at anyone they blame for their problems.
And if Russian forces are being pushed back by US-made tanks and aircraft it’s not too hard to work out who they’ll blame.
It would make no sense for Vladimir Putin to attack the US, because he has no chance of winning, but Putin does a lot of things that make no sense. It’s very possible he could react in a rage, and trigger a major – maybe nuclear – war.
Things Can Get A Whole Lot Worse
For now, things seem better – a little, anyway – than they were a couple of years ago. This would be a bad time to let your guard down, though. If you know what to look for there are some warning signs it would be very dangerous to ignore.
Our economy is finely balanced, and could crash into a recession at any moment. The government is gambling dangerously with the national debt, and risking a complete collapse of the country.
Being prepared for the worst has never been more important, because it could be just over the horizon.
You may also like: