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Monday, August 27, 2007

Economists See Subprime Fiaso and Excessive Debt as a More Serious Problem Than Terrorism

The Globe and Mail Report on Business story today over further fall out of the subprime mortage fiasco in the USA is very interesting . It is about the change in perception amongst American economists. A significant change has happened about what the short term risks are to the US economy.

Notwithstanding the old joke that says if you put all the economists in the world end-to-end they would still point in every direction - there is some consensus emerging. There were 258 members of the influential National Association of Business Economics who responded to the survey so the results have significance.

Those professionals who keep an eye on events that impact the economy have the following concerns about what can happen to mess up it up.

Defence concern over a terrorist attack and the Middle East is the top issue for 20% - down from 35% only six months ago. That is significant but also that fact that 18% tagged the fallout from the subprime mortgage fiasco and another 14% cited excessive personal and corporate debt as the top issues that can hamper the economy.

Interesting that the impact of the American government debt (3%) and negative trade (8%) balance were so low and declining form earlier surveys. See my post of August 24 on the impact of China on these isues. Even energy prices were the top concern for only 13% - down from 30% in a year.

The long term US economic anxiety is still health care costs (24%) and aging population (21%). The American education system will have a long term negative impact for 17%. The Federal deficit is the top long term concern for 13% and energy issues were cited by 9% of the participating economists.