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One can list numerous reasons for tepid economic expansion in the US. One explanation is that the US households and businesses are relentlessly bombarded with issues that generate uncertainty. Many of these issues carry the so-called economic “tail risks” – non-zero probability of a severe economic deterioration. In a vulnerable economy and after facing the financial crisis and the Eurozone crisis, tail risks are no longer brushed off. Unlike in the 90s for example, it doesn’t take much these days to slow consumer spending and trigger companies to resume hoarding cash.
If these mini-shocks could be avoided and the economy left to heal itself, chances of growth would improve significantly. Unfortunately the bombardment continues, with the bulk of uncertainty generated by the federal government. One only needs to look at the high-frequency consumer sentiment metrics to see the full picture. And people wonder why the 2013 GDP growth is projected to be around 1.5%.
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