A few questions on my mind

  1. Exposure of US institutions to Euro credit risk
  2. Willingness of the Fed to lend against what seem to be strong US balance sheets
  3. The effect of a soaring dollar


The first two require more digging to understand. The third we can speculate more about. On the one hand a collapsing Europe and a soaring dollar will squash the manufacturing renaissance. Net exports will plunge and that will be a drag on the economy.

At the same time, however, we should expect oil price to gain some double relief. First a slower Europe means a slower China and that means lower real oil prices. Second, a higher dollar means cheaper oil in dollar terms. Both of those will drive down gasoline prices.

Lower gas prices will ease pressure on US consumers and spur US auto sales – both of which could support recovery.

Lets say the Euro goes all to hell in 2012.  However, lets also suppose that we have apartment vacancies approaching 2-3% and gasoline at 2.50 a gallon. Does that sound like a prescription for expansion or contraction. Right now it still reads like expansion to me.

Obviously the markets think I am wrong and so do most economists. I look forward to finding out why.