Will the US Economy Really Improve in 2012?

2011 is over. In the past year, there have been so many things engraved in our memories that have surprised us. However, at the end of 2011, the “tail-up” U.S. economy obviously surprises and confuses many experts.

The U.S. economy “got better” when the European debt crisis got worse. The European debt crisis and the U.S. debt crisis share the same problems and did not happen suddenly. The European debt crisis became so negatively influential due to interference from U.S. rating agencies.

The U.S. economy has been a consumption leader for a long time, but for most of 2011, Americans were drowning in a high unemployment rate and bipartisan fights. Consumer confidence fell because of this. The deterioration of the European debt crisis has obviously brought American consumers some comfort: In this world there is still something worse than the U.S.

Additionally, the Arab world appears to be in a lot of chaos. Politics in Egypt and Libya have significantly changed, which enables American consumers to release pressure. The rise of consumer confidence has had an immediate and short-term positive influence on the U.S. economy.

Another consequence of the European debt crisis is that investors seek to prevent risks; therefore, U.S. dollars and U.S. properties have become more popular. The values of the U.S. dollar, U.S. stocks and U.S. real estate have recently increased.

The increase in values of U.S. dollars and properties coincides with the release of consumers’ needs and creates an illusion that the U.S. economy will get better. However, the illusion can’t ascertain the continuing improvement of the U.S. economy. In 2010, the application of QE2 brought some relief; at that time, consumption and the financial market had improved for several months before the U.S. economy slid back into decline.

Of course, the current situation is different than the one last year. At that time, the U.S.’ economic policy focused on major trade partners and hoped to take advantage of anti-dumping to get the manufacturing industry back and ignored the most important domestic issues, but now the U.S. government seems to make progress in policy choices.

In the long term, the U.S.’ main problem is still the retrogression of innovation and competitiveness and the inability to efficiently meet domestic needs. Hence, there will be a turning point in the economy and financial market in the future. The risk in thinking that the U.S. economy will begin to recover is significant.

If the U.S. focuses more on improving its substantive economy and does not just depend on QE and similar operation-twisting currency and financial methods, the U.S. economy will slowly recover. In the short term, the recovery might not lower the unemployment rate to a level that citizens can accept and the financial market might not recover significantly — U.S. policy makers don’t want to see this.