Tags: CNNMoney | Jolt | US | economy

Experts Tell CNNMoney: Single Jolt Can Plunge US Back Into Trouble

By    |   Friday, 24 February 2012 01:06 PM

Recent economic reports like falling unemployment and a rising stock market may make it seem like the economy is improving, but the economy remains fragile. Any single disruption from a sovereign debt crisis to an oil shortage can promptly send it back into recession.

This year might be just like 2011 when the economy seemed to be improving, and then there was the euro zone debt crisis, rising oil prices, and the Japanese earthquake.

Gasoline prices are the highest they've ever been at this time of the year, and might skyrocket if the Cold War with Iran intensifies. Iran has threatened to shut down the Strait of Hormuz, a passageway for 20 percent of the world's oil.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

"Four-dollar gas doesn't scare me, but if the Strait of Hormuz gets shut or bombs start falling on Iran, that would certainly be troubling for the markets and could lead to an oil price spike," Deutsche Bank economist Carl Riccadonna told CNNMoney.

Continuing government jobs cuts, especially at the state and local level, will probably remain a drag on the economy, economists say, CNNMoney reports. Congress is unlikely to act on major issues until after the election, which creates uncertainty for business.

Riccadonna estimates that uncertainty combined with government cuts could reduce economic growth by two percentage points in 2013, according to CNNMoney.

Plus, economic growth in emerging markets like China and India appears to be slowing. Based on past experience, they will have a hard time handling their slowdowns.

Some economists say the US economy is in better shape to handle rising gasoline prices than it was in 2011, according to Reuters. This winter has been warmer than usual and there are no supply-chain problems disrupting production.

"Fortunately the U.S. economy is on an upswing, not strong but on the way up," said Sung Won Sohn, an economics professor at California State University Channel Island.

"It's in a better shape to deal with the oil prices. We don't have the Japanese tsunami to worry about, business and consumer confidence have improved, and the job market is growing nicely."

Editor's Note: Meltdown on Main Street Coming, Prepare Now

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Friday, 24 February 2012 01:06 PM
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