Liftoff Or Cold Shower? the Economy in 2011 (Economic Outlook‪)‬

A year ago, the biggest risk to the global recovery lay inside the United States--with debt-burdened consumers not spending as much and with producers aiming at cutting costs instead of expanding capacity. Those concerns remain, but at the end of 2010 there was tentative evidence that spending by US households and businesses was picking up. Moreover, extra monetary and fiscal stimulus is now coming into effect. With a more favorable US spending environment emerging, more substantial risks to the global recovery for the first half of 2011 appear to lie outside the United States, specifically in China and Europe. That said, we all hang together in a global economy tightly bound by intertwined bank balance sheets and trade ties among multinational firms. A hard landing in China or a more intense sovereign-debt crisis in Europe would jeopardize US growth nearly as much as the failure of Lehman Brothers in 2008 did. Given these circumstances, the criticism being heaped by European and Chinese policymakers on the United States' latest round of stimulus seems oddly misplaced. Stronger US growth would help mitigate some of the problems in Europe and China.