Associated Press
In this file photo made Dec. 19, 2009, shoppers ride escalators at Water Tower Place in Chicago.

SALT LAKE CITY — While the American economy has now registered growth for five consecutive quarters, the pace of that growth has been meager, averaging a 2.9 percent real (after inflation) annual rate, and just a 2.1 percent rate during the past two quarters. Such growth trails the average 3.6 percent real annual growth pace of the past 30 years.

What we now call the Great Recession enters the history books at 18 months in duration, officially running from December 2007 to June 2009. Never since the Great Depression has a recession wiped out all net job gains of the prior economic expansion. Never since the Great Depression has a painful and lengthy recession been followed by such a limited growth pace.

Growth in 2011? Most forecasting economists see real growth during 2011 at a 2.5 percent to 3 percent annual rate, with the Federal Reserve's forecast a bit more cheery. As before, major economic headwinds of weak residential and commercial real estate construction, soft housing values and near double-digit unemployment impair the economy. In addition, fragile consumer confidence tied to anxiety about massive government spending and unprecedented budget deficits also constrains growth opportunities.

Budget deficits

Effective steps to reduce future growth rates of U.S. government spending are mandatory to getting this nation's financial house in order. You cannot tax your way to balanced budgets, nor can you tax your way to economic prosperity.

Greater media focus and rising consumer awareness of painful but vital steps necessary to deficit reduction are critical first steps in the process. Both the political left and the political right have been critical of proposals by various deficit reduction groups, while the middle seems more willing to have a healthy debate. Isn't that the basis of effective government: give and take on both sides?

Record budget deficits of the past three years, combined with projected $1,000,000,000,000 annual budget shortfalls for as far as the eye can see, have, to this point, found domestic and global bond markets willing to provide massive deficit funding. However, financial market uncertainty about ongoing budget deficits and huge national (sovereign) debt levels across southern Europe must be "a wake-up call" for the U.S. We will simply not be immune in coming years to financial market distaste and resistance to boatloads of additional U.S. Treasury debt issued to fund irresponsible levels of government spending.

U.S. employment

American job creation is expected to improve somewhat during 2011. However, a modest improvement in net monthly job creation will do little to trim the nation's unemployment rate, which has been at or above 9.5 percent for 15 months, the longest such period since the Great Depression.

Greater clarity from Washington, D.C., in regard to income tax rates, combined with progress toward more affordable government spending, would go a long way toward boosting business sector confidence. In a nutshell, rising confidence levels would enhance employment creation.


Sluggish U.S. economic performance, soft home values and major slack in labor markets have led inflation to extremely modest levels in recent months. One measure of consumer inflation recorded its lowest 12-month rise in 53 years!

While inflation is expected to remain mute during 2011, longer-term views remain split between sharply higher inflation and the perils of deflation. The former camp is buying gold and commodities. The latter camp is buying longer-term fixed-rate U.S. Treasury and high-quality corporate debt securities.

The Federal Reserve

This nation's central bank has drawn extensive criticism in recent weeks for its current program to boost the economy with another $600 billion of newly created money. Such funds are being used to purchase U.S. Treasury notes and bonds, with the intent of pushing longer-term interest rates lower.

Despite such massive bond buying, bond yields (returns) have actually risen in recent weeks, reflecting concern about the Fed's latest venture and expectations in some camps of stronger economic growth than the consensus view. The Fed's most important monetary tool, the federal funds rate, has been at a historic low target range of 0 percent to 0.25 percent for nearly 24 months, with little expectation of change any time before the latter part of 2011.

Housing and home finance

Most forecasters see average U.S. home prices stabilizing around mid-2011, with only modest gains in home values in subsequent years. Millions of homes in, or potentially to enter, foreclosure remain the fly in the ointment.

Average conventional mortgage interest rates have risen roughly 0.25 percent during the past few weeks, after plunging to their lowest levels in 50 years. For those interested in refinancing a mortgage, or financing a new home or foreclosed property, the timing remains outstanding.

Global pivots

Our Tea Leaf issue dated Feb. 17, 2010, entitled "A Shot Across the Bow," discussed the unfolding Greek national debt situation at that time. The article noted, "The greatest threat regarding the current Greek debt solvency debate is the possible domino effect involving other nations. A Greek default on its debt, or a painful plunge in the value and marketability of Greek debt securities, would likely be followed by similar debt issues for other nations. Such a domino or cascade effect would be difficult to stop once the process had begun."

The article also noted that "any financial support provided for Greece by the Germans and the French would effectively be seen as a similar level of support, if necessary, for Spain, for Ireland and for Portugal, with Italy and Belgium possibly not far behind."

The article also noted that if the contagion did spread to these other nations, it "should also be taken seriously by larger nations, including the United Kingdom and the United States."

As is well documented, other European nations and the International Monetary Fund (IMF) did ultimately come to the aid of Greece. In addition, larger European nations set up an enormous financial fund to deal with additional problems in other nations, should they arise.

Ireland bit the dust in recent days, with an agreement to accept a $113 billion bailout package from other euro nations and the IMF. The Irish had already enacted painful spending cuts and tax increases as a means to address a massive annual budget shortfall.

Financial market pressures continue to build on Portugal and Spain. Pressures are also building to tear apart the fragile 16-nation euro currency and euro community mechanism, with a viable chance that one or more nations will opt out of euro membership during 2011 or 2012.

The other major pivot is China. Its efforts to battle inflation and runaway bank lending should see the world's second largest economy slow during 2011.

Jeff Thredgold is chief economist for Zions Bank and founder of Thredgold Economic Associates, a professional speaking and economic consulting firm. Visit