Some people, when faced with discomfort, want to put it off as long as possible. Others say bring it on, so they can get it over with.
In the United States and Europe, policymakers have been masters of delay for the last several years. The Federal Reserve has medicated an ailing economy by forcing down interest rates and pumping up stock prices. Once the medicine wears off, nobody's sure what the side effects might be. In Europe, political leaders have kept the Greek economy on life support, neither bailing it out nor kicking it out of the euro zone, postponing the ultimate day of reckoning in the process.
Nearly everybody would love to see peace, stability and prosperity reign in 2013. But with much that could go wrong, that's unlikely to happen. Still, some dire economic developments might speed the inevitable, getting it over with promptly so that healing and recovery can begin in earnest. Here are 5 economic calamities that could happen in 2013 -- and might have a surprising upside:
America goes over the fiscal cliff. If negotiations over tax and spending deadlines break down, the typical family will face an extra $3,400 in taxes in 2013, with sharp cuts in government spending adding a second sucker punch to the economy. A recession would probably ensue, with more of the layoffs, pay cuts and other miseries the country endured a couple years ago.
But all those austerity measures would sharply improve the mismatch between what Washington spends and what it takes in, while alerting nearly every U.S. household to the severity of America's debt problem. Wrecking the economy is just about the worst possible ways to fix the government's finances, but so far, Washington has shown little serious effort to do it the right way: By phasing in a sensible set of tax hikes and spending cuts big enough to change the whole trajectory of government spending over the next 50 years. A crisis mentality might make politicians more agreeable, and voters more willing to sacrifice.
Greece defaults. European leaders have dreaded this possibility, since a Greek default could unleash a financial contagion that takes down the far-larger economies of Spain and Italy, and perhaps all of Europe. But the stutter-step bailout of Greece, which began in May of 2010, has bought time for banks, businesses, and investors exposed to European sovereign bonds to insulate themselves against potential losses. Some analysts think it's inevitable that Greece will leave the euro zone, perhaps after German elections scheduled for September.
If that happened, Greece would probably default on its debts and revert to its own currency, which would be a chaotic period of adjustment. But it would end years of uncertainty over Greece's fate, and force Europe to commit to bailouts of Spain and Italy if necessary, which could ultimately build confidence in the euro zone while forcing reforms that would make Europe stronger.
War with Iran breaks out. If bombs fly over Iran's controversial nuclear program, oil prices could spike above $200 per barrel--more than double current levels. Iran might be able to shut down the Strait of Hormuz -- a key chokepoint for oil shipments -- for several weeks, and retaliate by mounting terrorist attacks against U.S. or western targets. But one outcome that's unlikely is an ultimate Iranian victory, and a shooting war would probably leave Iran's nuclear facilities in tatters. A war with Iran might also weaken its support for the besieged Assad regime in Syria and for Hezbollah militants who frequently threaten Israel. Once the shooting stopped, there might be an unusual lull in Middle East saber-rattling. (Though lulls in the Middle East rarely last for long.)
Gas hits $6 per gallon. A war with Iran would obviously send gas prices skyrocketing, which would punish consumers, cutting into the money they have to spend on other things. But higher gas prices often come with a silver lining, because they boost demand for more efficient cars and force drivers to conserve. Automakers have made impressive strides recently on new technologies including electric vehicles, different varieties of hybrids and even better gas-powered engines. A surge of demand for high-mileage cars could push those technologies into the mainstream and make them much more affordable.
Runaway inflation erupts. For years, critics of the Federal Reserve have been warning that the central bank's controversial "quantitative easing" programs, which basically amount to printing money, will cause ruinous inflation. It hasn't happened yet, but if it does, inflation would, ironically, help solve another important problem. Inflation makes just about everything more expensive -- except for debt, which gets cheaper, since it's usually denominated in past dollars that don't fluctuate in value. So it would get easier for the government to pay down the $16 trillion national debt, and for many consumers to basically do the same thing with mortgages or other types of money they owe.
There's a catch: To take advantage of inflation as a debtor, you have to stop borrowing, because new debt will typically come at a much higher interest rate. So lining up your spending with your revenue is a good way to prepare for the arrival of inflation. If that alone happened in 2013, it might turn out to be a pretty good year.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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