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

The U.S. economy

What we now call the Great Recession officially began in December 2007 and ended in June 2009. It was the longest, the deepest and the most painful recession since the Great Depression.

By my count, that suggests that the current U.S. economic expansion is now reaching the two-and-a-half year mark. The current expansion has been less than satisfying both statistically and emotionally, with major headwinds still in play involving weak residential and commercial real estate markets, uncomfortably high unemployment, major European financial risk, and elevated levels of anxiety about the direction of the federal government.

The current U.S. economic expansion has been especially lackluster when considering the massive and unprecedented levels of both fiscal and monetary stimulus. While modest economic growth has returned, a "recession of confidence" remains center stage.

Economic growth in the new year about to unfold is likely to remain substandard, with most forecasts congregating around a 1.5 percent to 2.5 percent real (inflation adjusted) rate of growth. More bearish forecasters see particularly anemic growth in 2012's first half.

The size and scope of a possible European financial implosion could lead the United States and much of the world back into recession, although that is not the consensus view. Nevertheless, investors around the globe have taken a "shoot first, ask questions later" approach to European sovereign (national) debt markets and the contagion that has now spread to more and more members of the euro community.


Political theater of the absurd has been commonplace in the nation's capital, with extreme partisan politics today's reality. The government's ability to live within its means remains highly elusive, even as European developments should be sending strong signals to Washington about damaging annual budget deficits and a more than $15,000,000,000,000 gross national debt.

Various economic studies have suggested that any nation's ability to prosper and grow at a satisfactory pace is endangered when its gross national debt reaches 90 percent of that nation's annual economic output. We are now at 100 percent … and rising quickly.

Trillion-dollar-plus budget deficits of the past three fiscal years will continue for as far as the eye can see. The biggest threat to this nation is the financial cancer of irresponsible government deficits. As noted frequently, the need to slow the future growth pace of entitlement programs is mandatory.

2012 elections

Already tired of the political battles underway? Just think … only 342 days until Election Day! The failure of the "super committee" was the latest in government missteps. An emotional national debate about (1) the size and growth pace of the federal government and (2) who pays for it will be one key element of political discussion during most of 2012.

U.S. employment

Wary business leaders and worried consumers have contributed to the weak level of American job creation during the current economic recovery. The nation has regained only one-fourth of the 8 million jobs lost during the crisis of 2008 and 2009. Unless and until confidence levels improve, weak additions to employment will continue.

The nation's unemployment rate has averaged 9.0 percent for the past three years. Most forecasters see an unemployment rate of not less than 8.5 percent by the end of 2012.

To be heard frequently during the presidential campaign now well under way … no sitting president in the past 75 years has been rewarded with a second term when the unemployment rate was above 7.2 percent. Whether the president can shift the blame for high unemployment to intransigent Republicans in the Congress will have a telling impact on election results.

U.S. inflation

Consumer prices are expected to rise roughly 3.5 percent during 2011, with a slightly lesser rise the consensus view for 2012. Weak global economic growth could lead oil prices lower, a key element in that forecast. Over a longer time horizon, the debate continues between those expecting higher U.S. inflation and those seeing a Japan-style deflation in the U.S.

The Federal Reserve

The Fed's most critical interest rate — the federal funds rate — has been at an all-time low target level of zero percent to 0.25 percent since December 2008. Moreover, the Fed's Open Market Committee has stated it expects this rate to remain unchanged until at least mid-2013.

In addition, the Fed has tripled the size of its balance sheet by buying massive amounts of U.S. Treasury securities and mortgage-backed securities. The intent? To drive long-term interest rates lower. While such actions have been largely successful, weak home prices across the nation, high unemployment and a more paper-intensive lending industry — negatively affected by the Dodd-Frank financial legislation — has not led to a strong surge in mortgage refinance activity.

Housing, mortgage rates

Most forecasting economists see national home prices stabilizing by mid-year 2012, with very modest price appreciation to follow. At the same time, conventional 30-year fixed-rate mortgages have been at a 60-year low near 4.0 percent in recent weeks.

One could make a case to delay a home purchase for six to 12 months, but mortgage rates could rise enough to offset any slightly lower home price. Now may be an outstanding time to purchase a new or foreclosed property and to refinance a mortgage.

Global keys

Chinese and Indian economic growth are likely to slow somewhat, while Japan struggles with very substandard performance. High oil prices have boosted oil producing nations at the expense of user nations. The Canadian economy has slowed, while Mexico and Brazil are doing well.

However, these days it's all about a fragile European economy. Greece, Ireland, and Portugal have already been bailed out, while major anxiety about Spain and Italy exists. Even the French have seen borrowing costs rise as questions about that economy have surfaced. A possible French downgrade from its current triple-A status could send additional shock waves across Europe.

The Germans and the International Monetary Fund will face rising pressure to stem European debt contagion, even as affected nations face the real need to get spending and debt issuance under control. No other issue is more critical to global economic performance in 2012 than a solid resolution of the European debt crisis.