Two veteran observers of the global economy are offering mixed forecasts on its immediate and long-term prospects.

Robert Rubin, Treasury Secretary during the Clinton Administration and current co-chair of the Council on Foreign Relations, along with billionaire hedge fund manager John A. Paulson, took part in a public conversation on the economy earlier this week at New York's 92nd Street Y.

Although the U.S. economy appears to be recovering, both men said America's finances -- as well as the global economic system -- still face multiple risks that could derail any improvements.

"Serious Headwinds" That Could Impede Growth

"If you compare where we were to a year ago, we really are in much better condition," says Rubin. "There are indeed a goodly number of positives." But there are also, he says, "serious headwinds" in the form of possible impediments to growth. Rubin says these obstacles include "our long-term fiscal trajectory (which) is horrendous, unsustainable and dangerous" and undermines confidence -- as well as state and local government deficits "that are going to be have to be closed by their constitutions." Contributing to those figures, he says, are rising oil prices and high unemployment -- which Rubin estimates at 16%, if temporary workers and people who have entirely dropped out of the workforce are included.

"The probabilities are very unclear," he says. "While the most likely outlook may be the more positive forecast that many forecasters now have, there is a very real chance that what actually happens could fall short of that."

A Variety of Economic Scenarios


Rubin says that, as an investor, he is concerned about "low-probability events which, if they occur, could have huge consequences" -- events such as a resurgence of terrorism, possibly in a politically unstable and nuclear armed Pakistan. He also warns the U.S. fiscal deficit could cause a crisis in the bond market, that in turn could have "severe effects on our economy."

"It's not inconceivable that something goes wrong in Europe," Rubin notes. adding that if default happens there, "that could have ramifications elsewhere." But he admits the future is far from clear: "This is the most uncertain and complex time in my adult lifetime in trying to make judgments about what is going to happen either in the short term or the long term."

For his part, Paulson predicts that, if serious "outside events don't occur," U.S. economic growth will rise 3% to 4% this year and continue improving in 2012. But a possible obstacle to this growth is the weakness of the U.S. housing market. "The housing market has stopped falling, it hasn't recovered," he says. "Home prices are still down 30% to 35% from the peak, new home construction is still at an all-time low. It's hard to spur employment growth without a return of new home construction."

Housing metrics, Paulson adds, appear "to have bottomed and are showing signs of improvement" -- with the percentage of homes going delinquent every month down 75% from the earlier peak. "As those trends continue, I expect housing prices will start to recover and new home construction will start to improve," he says, "and when that happens, that will be a boost to both employment and further economic growth."

Japan, the Middle East, Europe

There are three major uncertainties facing the global economy, Paulson notes. The problems facing Japan in the wake of last week's earthquake, tsunami, and nuclear reactor meltdowns could "derail or slow" global economic growth. Political turmoil in the Middle East has the potential to disrupt oil supplies, leading to higher oil prices and hampering global economic growth. And then there's the credit crises facing Greece, Ireland and Portugal, which are all at their debt limits, and possibly Spain, Italy and even France. "If they're not able to resolve this issue, this can create a risk to the global economy," he says.

Looking at the longer term, Rubin says although the U.S. has "a dynamic society" and "tremendous comparative advantage in the global economy...the real question comes down to our political system and whether it will meet its multiple challenges, most particularly putting our fiscal house back in order...and creating the resources necessary for the public investment that is requisite for competitiveness and growth."

Paulson says he is "rather optimistic" about the long-term prospects of the U.S. economy, which is now "growing very strongly, has very bright people, an entrepreneurial culture, and corporations that are global leaders. If the U.S. private sector is allowed to continue to grow, prosper and innovate, and the government gets the fiscal house in order, then I think the U.S. economy can continue to grow and remain the dominant economy in the world."

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accuscope

With off the books obligations such as medicare and social security (there are many other off the books expenditures) its estimated (by experts) that the debt burden is from a low of 60 TRILLION to 200 TRILLION!!! No one knows for sure, That's how corrupt the book keeping is... Well, You do the math, If the USA wasn't the reserve currency of the world and such big spenders, no one would want to touch the USA with a barge pole.

March 17 2011 at 8:51 PM Report abuse +3 rate up rate down Reply
jkennedy806

four factors demonstrate the FHFA’s full control over the records.

Why are we so intent on gaining possession of these records?

Members of Congress have received more than $4.8 million in political contributions from Fannie Mae and Freddie Mac over the last ten years. According to OpenSecrets.org, from 1998 through 2008, the top ten recipients of Fannie Mae and Freddie Mac’s political largess are as follows: Senator Dodd (D-CT), then-Senator Obama (D-IL), Senator Kerry (D-MA), Senator Bennett (R-UT), Rep. Bachus (R-AL), Rep. Blunt (R-MO), Rep. Kanjorski (D-PA), Senator Bond (R-MO), Senator Shelby (R-AL), Senator Reed (D-RI).

Senator Dodd, the top recipient of Fannie Mae and Freddie Mac campaign contributions, was Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, which is responsible for regulating the mortgage industry. Notably, President Obama was a top recipient of campaign monies despite being in the Senate for only three years.

Fannie and Freddie used these political contributions to protect themselves from being held accountable as the housing market was set up for collapse. Now, as a result, taxpayers are on the hook to Fannie and Freddie for at least $400 billion — and $5 trillion in mortgage liabilities. Simply put: We believe the American people deserve to know the full truth about the partnership between Fannie and Freddie and their allies on Capitol Hill.

March 17 2011 at 5:12 PM Report abuse +2 rate up rate down Reply
elkhartbiker

As far as I'm concerned neither one of these guys know enough to get out of the rain. They're both criminals, especially Paulson, and should be sitting beside Bernie Madoff in prison.

March 17 2011 at 4:54 PM Report abuse +3 rate up rate down Reply
accuscope

Want to get a feel for where the USA is heading?... Check out the last super power that had a republic form of government... The Roman empire! The USA has accounting methods far worse than Enron, Any company officials cooking the books the way the USA government does (regardless of which party is in control) would be prosecuted and locked up for several hundred years. The USA government is morally flawed in a big way, and this will be its undoing.

March 17 2011 at 4:31 PM Report abuse +4 rate up rate down Reply
jpe3318806

I FIND IT QUITE ODD THAT rUBIN( THE CHOSEN PEOLPES) CAN'T TALK ABOUT THE ECOMONY.i WONDER WHAT CITIBANK SHAREHOLDERS WOULD SAY ABOUT RUBIN DEFRAUDING SHAREHOLDERS OF 122 BILLION. OBAMA'S ECONOMIC TEAM CONSISTS OF JEWS VERSED IN FRAUD AND ALL PROTEGES OF RUBIN. SUMMERS(SAMUELSOM) , ORSZAG, GEITHNER ARE THE ALL STARS IN THE GAME OF LEGAL THEFT. NO PROBLEM THE PEOPLE ARE WAKING UP TO THE SCHEME AND TIMES ARE A COMMING.

HAPPY BIRTHDAY RACHEL CORRIE.

March 17 2011 at 11:29 AM Report abuse +4 rate up rate down Reply
vandybars

If the private sector is allowed to grow and the government gets its fiscal house in order we may continue to be the dominant economy in the world. The weakest link in this senario seems to be the government's fiscal house. I do not fault President Obama for the abysmal budgetary situation. My focus as should every American should be on Congress to reign in their profligate spending.

March 17 2011 at 11:17 AM Report abuse +6 rate up rate down Reply
1 reply to vandybars's comment
Dennis

How can you NOT fault Obama??? He is running the worst deficit in history, 3 times that of any year that Bush was in office. He pushed through health care on lies and deceit, saying it would save us money but almost nobody who has studied his plan agrees. He's now pushing high speed rail, throwing around a few billion here and a few there.... Billions of dollars is just pocket change to him. I laughed when he finally came out and said that we need to get our fiscal house in order, what a joke coming from him. YOU, Mr Pressident need to get YOUR fiscal house in order. Remember when he said if elected there would be transparency in government??? How about telling us where all the money you're spending (Mr President) is going/has gone. Nobody seems to know. The GAO just told us that we owe far more to China than we previoulsly thought but still aren't exactly sure how much because of sloppy record keeping. This is OUR tax dollars being thrown around like it's confetti!!! Now the Republicans are trying to cut/stop this ridiculous spending but the President is opposed to it. In fact, Obama wants more government credit cards so he can waste even more tax payer money. Even the mandated Federal debt ceiling passed during more rational times is a target for him, Obama wants it raised and raised a lot - spend, spend spend Mr President. Please stop already!

March 17 2011 at 3:02 PM Report abuse +5 rate up rate down Reply
inasctg56

You're in the Daily Finance section that has reported many times how our manufacturing and exports have made gains for 19 months; 71,000 manufacturing jobs added last month. The forecst is for an additional 200,000 jobs per month with gdp at 3 to 4. But every positive report that comes out you question or deny. And yet many of you cheer every time gop at federal and state levels cut jobs and wages. I don't understand this kind of mentality.

March 17 2011 at 10:30 AM Report abuse rate up rate down Reply
1 reply to inasctg56's comment
sasha

Because underneath it all, there is an amazing defeatist attitude in this country. While many revile the government for doing anything, they sure complain when it doesn't supply what they think it should. It is also amazing that many of those who think the economy stinks and the debts are too high were all in favor of the wars in Iraq and Afghanistan.

March 17 2011 at 11:28 AM Report abuse +1 rate up rate down Reply
sjoberdix

Heres what we owe the top 5 - 1)China - 1160.1 billion 2) Japan 882 billion 3) United Kingdom 272 billion 4) Oil Exporters 211.9 billion 5)Brazil 186.1 billion so is japan going to call in their markers becauses everything they are facing now and who is oil exporters ? more wall street crooks ? is this more creative accounting on wall street part? The feds borrowing money to give to wall street and then the taxpayer has to pay back plus interest to the ones the money was given. We need the wikileaks files of the ex swiss banker to get to the bottom of this.

March 17 2011 at 10:27 AM Report abuse +9 rate up rate down Reply
castcutters

I think if were possible to visualize the true financial condition of the United States it would look a lot like Northeast Japan looks right about now.

March 17 2011 at 10:00 AM Report abuse +6 rate up rate down Reply
sjoberdix

Since Rubin, Greenspan and Summmers were the ones who went to congress to have Glass-Steagall Act repealed, wheres their crediblity ? They're worried about the unrest around the world, when they should be worried about the unrest in thier own backyard. Theres MILLIONs who want justice for thier lost homes and jobs and the root cause ,wall street and their bought politicians to pay for their actions.

March 17 2011 at 9:32 AM Report abuse +12 rate up rate down Reply