Via the Council on Foreign Relations:
Political Polarization and the U.S. Economy
The president, the entire House, and one-third of the Senate face reelection next year. The choice of a governing party, if one party gains control of both the White House and Congress, could have enormous consequences for the economy. The increasing partisan and ideological division between the two parties constitutes the single most important influence on future economic policymaking.
The main trend in 2012 is volatility, with the preponderance of extreme macroeconomic risk on the downside. It is a two scenarios environment with roughly equal weight, with the center of global risk located in Europe.
China’s Rise Under Stress
History will note that 2012 marked China’s shift to a slower growth trajectory and the anointment of its “fifth generation” of leaders. This comes at a time when the country faces formidable internal and external challenges.
Shortage of AAA Assets
Blaming speculators and irresponsible creditors for the successive financial crises since 2007 is edifying and partly true, but the recent booms and busts might have more to do with the search for safe assets than with the search for risk.
A New Appetite for Risk
Accelerating financial market panic has, since late 2009, gradually pushed the euro towards the point where today an increasing number of observers openly question the survival of the common currency. During the crisis, it has been evident how the European political response has been reactive, timid, and first and foremost too slow, to successfully restore confidence.
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