· The labor market has a long way to go before it can return to full health and manage without the crutch provided by the Federal Reserve Board’s artificially low interest rates. The number of workers neither employed nor looking for work — they are not officially counted as unemployed — rose last year by 1.1 million. I fear that the labor force participation rate, now at historic lows, will never recover to pre-recession levels as many now-deskilled workers who have dropped out of the labor market fail to re-enter even as wages and job prospects improve.
· We do not know whether the strong dollar (at approximately two-year highs against the yen and the euro) will hurt exporters more or less than it helps consumers prowling the aisle of Wal-Mart in search of cheaper trainers, microwaves and flat-screen television sets. But we do know that poorer nations who have borrowed in dollars, and must pay interest in dollars and ultimately repay in dollars, might be forced to default if they cannot find the means with which to purchase newly dear dollars. Markets are putting the likelihood of a default by Venezuela’s mismanaged, clapped-out economy (inflation rate over 60 percent) at 90 percent as the regime needs to get at least $85 per barrel of oil — a jump of over $30 — to cover the cost of imports and interest on the nation’s debt. The financial system’s ability to withstand a wave of such defaults has yet to be tested. We just might find ourselves leafing through our dog-eared copies of John Maynard Keynes as we live through a circumstance he described in 1932, “for the world as a whole the avoidance of financial collapse … is now the front-rank problem.”
Then there are the potential external upsets to a continued smooth upward emergence from the long recession. Vladimir Putin might decide to offset the threat to his control posed by Russia’s economic problems by ratcheting up the new cold war; the European Union might continue imposing German monetary and fiscal policy on economies much in need of a boost; China’s growth rate might continue to decline, putting pressure on its commodity suppliers, and its military become increasingly pugnacious, putting pressure on America and its allies to react; the Middle East might move from mere chaos to nuclear confrontation as Iran’s centrifuges continue to spin to create the nuclear bomb it says it will use to remove the Israeli cancer from the region, while Israel is neutered by fear that a hostile American administration can no longer be counted on for support, and by its own internal divisions; North Korea might … well who can speculate what a serio-comic regime might do.