Here’s why you should be worried about the spiraling demise of the Euro.
Travis J. Berge, Early Elias, and Oscar Jorda, Economists at the Federal Reserve Board of San Francisco, have analyzed the domestic and international factors that threaten the American economy. What they found suggests that the risk of another recession in the next several months is alarmingly high — and largely out of our control. Downside risks within the U.S. are pretty low, but taken together with external factors, particularly the escalating crisis in Europe, the likelihood of another U.S. recession jumps above 50 percent.
Here’s the graph:
Look at the thick blue line in this graph. It combines the risks to the economy from both domestic and external factors. Per the authors: “Viewed through the domestic lens, the immediate risks of recession appear to be low, but gradually increasing. International risks, though less precisely measured, are the mirror image. Risks are highest in the very short run, but then fade. In combination, the data suggest vigilance.”
More than that, “[i]t indicates that the odds are greater than 50% that we will experience a recession sometime early in 2012.”
Before you start hoarding money under your mattress, there’s an important caveat here: “Because the international odds of recession are more imprecisely estimated, one must be careful with a strict interpretation of this result.” But there’s no way around the fact that, as the authors note, “the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic.”
