The big risk to the future is political, not economic
Larry Lindsey, former governor of the Federal Reserve and former economic adviser to President George W. Bush

The American economy has been the engine of global growth for the last quarter century. That has been a conscious policy choice by administrations of both parties as well as the objective of the nonpartisan Federal Reserve. We did so not only for our own benefit, but also as a means of promoting growth and stability in the emerging parts of the world, particularly in Asia. This has probably been the most successful use of America's "soft power" in our history.

No policy is without its costs and trade-offs. To achieve our ends we relied on a robust consumer sector with unprecedented access to easy and cheap credit. Homeownership rates, the number of cars per driver and the ownership of a whole range of consumer durables hit new records. But many consumers became overextended, and now American growth has hit a temporary limit. Consumer retrenchment is likely to go on for a while, probably through most of 2009, producing an extended period of slow growth and quite possibly a recession.

Although the developing world has come a long way, it is still quite dependent on American growth and will inevitably slow. After three years of record-setting global growth of 5 percent or higher, the global economy will likely slow to around 3 percent growth. Then global growth will pick up again.

The biggest risk to our future comes from politics, not economics. Politicians seeking to exploit voter unease are calling for significant changes in the bipartisan policies that have produced a quarter century of global prosperity. Demands for a rollback in free trade are particularly troubling, but so are calls for a return to punitive tax rates, significantly enhanced regulation and a retreat from America's commitment to underwriting global security. Whatever our current problems, reversing an approach that produced victory in the cold war and cemented nearly two decades of peace and prosperity is simply not a prudent course.

Bad for the Republicans, good for the Democrats
Robert Reich, secretary of Labor under Bill Clinton, and author of "Supercapitalism: The Transformation of Business, Democracy, and Everyday Life"

I think the reports we've been hearing that the United States will rebound in the second half of this year are overoptimistic. I don't know where the demand to create economic growth will come from. Exports can't fill the gap, and I worry that the perfect storm of rising fuel and food prices and declining home prices has put consumers in a bind. Real median incomes are lower than they were in 2000, and consumer debt is higher. People can't get money out of their homes anymore.

Consumer confidence is dropping, and the concern has been growing for years. It's a deeper phenomenon than the short-term issues. Americans work more hours than the Europeans or the Japanese, and have gone deep into debt. I don't think recovery from this recession will be vigorous.

The world isn't as dependent on the U.S. consumer as it was 10 or 15 years ago; there is indigenous demand now in Eastern Europe and China. Indeed, the rest of the world isn't in recession now because of the U.S. economic downturn.

High oil prices are a drag on the economy, even though we're more efficient than we were in the 1970s, when we had the last energy crisis. The biggest effect in the immediate future is political. Americans hate paying a lot at the pump, and they take it out on politicians. That's bad news for Republicans and good news for Democrats.

Conditions will likely remain difficult
Robert Rubin, Treasury secretary under Clinton, now chairman of the Citi executive committee

We are in a very uncertain and complex environment. There are a range of possibilities, and we can wind up anywhere on that spectrum. That said, I think there's a pretty high probability that conditions are going to remain difficult and that the principal problem is going to be consumption. Oil prices are plainly at levels that are impacting the consumer. We have falling housing prices. We have a zero percent savings rate and a high level of debt. The Federal Reserve can lower interest rates, but that doesn't automatically translate into new loans extended. There are a lot of people who believe that credit is likely to remain tight. So the Fed lowering rates is only one part of a process. Something like the legislation that Rep. Barney Frank has introduced, which is intended to catalyze the renegotiation of currently and potentially troubled mortgages, would be helpful.

There's another key point. It's very important to focus on the short term, and the terrible problems the situation is creating for people. But I think that there's a massively more important issue facing us: the long-term economic health of this country. I think we can do very well in the long run, but there's so much we have to do with regard to health care, energy, the fiscal situation and education to realize our potential. And I hope we don't lose sight of that.

The psychological impact will only get worse
Wilbur Ross, billionaire investor and past director of the Turnaround Management Association and American Bankruptcy Institute

I wish I could agree with treasury secretary Henry Paulson that we'll have a second-half rebound. The American consumer is both tapped out financially and burned out psychologically, so I don't see any reason that miraculously, three weeks from now, the whole world will change. The tragic attrition in home values has to have a negative wealth effect, a poverty effect, just as when homes were going up it made people feel more prosperous. I don't see the housing market turning, and I believe the psychological impact will get worse. Economists seem to think that a change in housing prices has a 3.75 to 7 percent effect on consumer spending in either direction. So at the low end you have an impact of $135 billion less in consumer spending.

People were using their homes as an ATM machine with bedrooms attached. That's over with. In the last five years, consumer debt rose from $9 trillion to some $13.5 trillion. In 2006 alone, Americans took out $350 billion from their homes in home-equity loans or second mortgages.

We save about as little as any nation on earth relative to our income. The problem is too little savings and too much borrowing. There have been studies showing that people are now buying food on credit, using credit cards just to go to the corner grocery store. I don't think this is Armageddon or a Great Depression, but at best we're in for a year or so of stagflation or flat growth.

Beyond a year, we'll have a new administration, and I don't know what they'll do to offset this. By November, there will be only two issues voters care about: their house and their job. That will provoke the candidates to deal with the question of how to pump up the economy. One thing they can do is let the dollar fall. Part of the reason you have declining asset values in the United States is that our currency is overvalued. Right now we have a huge trade deficit that is helping make the economy weak. A lower dollar will help that. The growth rate in exports has been better than the growth of imports. Our trade deficit has been running at 7 percent of the entire economy. If we were to cut the deficit in half, we'd take care of unemployment.

The world is getting more interconnected. We need to have a lower currency to get a semblance of strength for exports, but we shouldn't try to derail free trade. That would trigger a worldwide recession because of our interconnectedness. If we start a trade war, there could be bad consequences, such as our trading partners selling the trillions of government securities they own. If you start a war, people use the weapons they have.

Don ' t be fooled by a ' dead-cat bounce '
Mark Zandi, chief economist of Moody's Economy.com

The economy will rebound in the second half of the year, although there is a good chance it will be a "dead-cat bounce." The key is the rebate checks taxpayers are receiving this summer—worth more than $100 billion. Without the rebates, households would be cutting back on spending, and there would be no debate about whether we are in a recession. If history is a guide, about two thirds of the rebate money will be spent by the end of the year. Surveys of what people say they will do with the money suggest that this time more will be saved and used to repay debt, but what people say is not the same as what they do.

But the rebate checks don't address the economy's fundamental problems, most importantly the free fall in the housing market. By my calculation, the decline in house prices has slashed $2.5 trillion from household wealth (more than $25,000 for the average homeowner), and prices continue to decline rapidly in much of the country. By early next year the rebates will be spent and households will be poorer.

Meanwhile, the surging oil prices are acting like a tax increase—except the proceeds don't go to our friendly governments but to big energy companies and overseas producers. And there is lots of money involved. When gasoline was selling for closer to $1 at the start of the decade, American households were spending some $300 billion each year to drive their cars and heat and cool their homes. They are now spending some $700 billion a year on energy. Household gasoline bills in the coming year will rise about $100 billion—even if national gas prices stay near $4 a gallon through 2008.

Spending more to fill gas tanks and buy a loaf of bread means there is less to spend on other things. Vehicle sales are plunging, and the airlines are slashing flights to survive. Businesses are increasingly focused on energy savings and less on how to make us more productive workers. This is a painful weight on our collective standard of living. Yet the higher energy and food prices make it difficult for the Federal Reserve to lower interest rates for fear of broader inflation. Businesses have so far eaten their higher energy costs and not passed much of them along to consumers. This is a serious risk, though, as it would force the Federal Reserve to raise interest rates. There is nothing more painful than higher energy prices and higher rates; every recession since World War II has been caused by that noxious mix.

Why high oil prices make it hurt so bad
Bob Lutz, General Motors' vice chairman, global product development

Historically, any time there was a slowdown in the United States, there would be a slowdown globally. That's because the United States used such a high percentage of the world's resources—oil, steel, rubber products and so on. Whenever we slowed down, the suppliers of those raw materials would have to slow down. That would result in a drop in the prices of those commodities, which when they entered the United States would restart our economy from a lower cost base. Usually petroleum prices were the first to react to a severe U.S. slowdown.

Now the European economy is being driven largely by the boom in Eastern Europe, particularly Russia and some of the former Soviet republics; those countries are growing almost as fast as China. They're creating a high demand for European products, and the resulting prosperity has little or nothing to do with the United States.

Then you have the huge global growth engine that is China, whose economy is rapidly expanding and industrializing, and is absorbing more and more of the world's energy and resources—resources that used to come to the United States. As a result, the world is seeing something it has rarely, if ever, seen—a U.S. slowdown with little effect on the rest of the world.

As for the price of oil, when it goes up and stays up, it has a negative effect on the entire economy because oil goes into making virtually everything, including steel, aluminum, plastics, rubber, fabrics, transportation … and food. People don't generally associate food and petroleum, but petroleum is used to make fertilizers and run the vehicles used for planting and harvesting, storage and processing, and the trip to market and for the final sale from the freezer in the store to the freezer in a home. And food prices affect everyone around the world.

General Motors and the U.S. economy in general are seeing a short-term disruption in growth caused by rising oil prices. Fortunately for General Motors, we are a global producer, and we're well positioned in the rapidly growing economies of China, Russia, India and Latin America. And while we experience growth in those markets and position ourselves for a resurgent U.S. economy, we're going to increase our R&D spending to expand alternative fuel solutions and advanced technology solutions to lessen and ultimately eliminate everyone's dependence on petroleum.

That's why we're such forceful advocates of cellulosic, non-food- based ethanol, which, with greater government and industry support, could substantially reduce the world's dependence on petroleum, and relatively quickly.

Could the Internet help us out of this mess?
Marissa Mayer, vice president of search products and user experience at Google

Hundreds of millions of users, billions of searches, tens of billions of Web pages—numbers so large and intangible make it hard to appreciate the scale of the Web and its viral hyper- connectedness. Visiting a cybercafé in Switzerland in 1999, I glimpsed something on another customer's screen—a little Web site my friends and I were building, Google. We had never marketed Google, yet it was already spanning the globe. Now more than half of Google's searches and revenue come from outside the United States. If one country has several quarters of weak economic performance, our business remains resilient—buoyed by the economic strength and search activity elsewhere. Internet technology means more customers from more places, which allows us to benefit from the expanding and diverse economies of the world. We see search queries from everywhere—Antarctica included.

The reach and growth of the Internet magnify the notion that the world's economies are increasingly decoupling from any one nation's fortune. But that doesn't mean the world is becoming more disconnected. On the contrary—the Internet brings a new connection through access to information, better communication tools and shared intellectual understanding.

Today ' s pain may change behavior for the good
Steve Case, cofounder of AOL and chairman of Revolution LLC

There's good news and there's bad news. I'll start with the bad and the most obvious. Rising oil prices are having a significant impact on our economy. Not only are consumers feeling pain at the pump, but we have hit the tipping point where that pain spreads well beyond, hitting consumers hard at virtually every turn. From the basics like food and clothing, to air travel and family vacations, it is clear that oil prices are going to continue to take their toll for the foreseeable future.

But the good news is, with that pain, I believe we will ultimately experience long-term gain. We see it in the news almost every day: high oil prices are forcing consumer behavioral changes. With tighter family budgets, consumers are wasting less. Also, people are conserving energy through alternative transportation—cycling, carpooling, car-sharing—and in their homes, for example, by turning off unneeded lights. Instead of buying food in our grocery stores that's been shipped for thousands of miles, people are shopping at their farmers markets to buy locally grown food.

Also, there is a push by the public and private sectors to accelerate investments in alternative energies. With many claiming we have reached our peak oil production and some oil geologists believing that 90 percent of the world's oilfields have been tapped, it's clear that alternative energy is no longer a fringe concept. It is part of our future.

Business as usual would be a terrible solution
Bill George, author of "True North," professor of management at Harvard Business School and former chair and CEO of Medtronic

The U.S. economy is—and will continue to be—the world's largest, with the most open markets. But global firms, often based in the United States, are more aggressively expanding their export businesses and building their franchises outside the United States. This is the inevitable effect of slowing U.S. growth and the rapid growth of developing countries. CNN commentator Lou Dobbs and others call these shifts "outsourcing," painting them negatively. In fact, the strengthening of global companies—especially those making enormous investments overseas—is extremely good for the United States. The success of global giants like General Electric, IBM, Wal-Mart, Exxon, Boeing and Avon Products creates wealth that enables them to invest both overseas and in the United States.

They are creating high-paying jobs—"knowledge positions" in engineering, marketing and high-tech manufacturing. Left behind are the low-tech manufacturing workers, many of them unionized, whose jobs are being shifted overseas. But trying to constrain or to slow those shifts will weaken the ability of U.S. companies to compete on a global scale, and only accelerate the loss of jobs to rising powers like India and China. The United States needs to invest massive sums into educating knowledge workers and retraining employees so they can compete in the global economy.

If oil prices stay at or above their current level, they will accelerate another dramatic shift: the growing power of energy-producing nations—Russia, Nigeria, Venezuela and countries in the Middle East. They are gaining, while net energy importers (the United States, Japan and Europe) are losing economic power. Oil wealth has helped push nations away from democracy to centralized dictatorships and led to more corruption. When governments choose to hold oil and other commodities instead of the declining U.S. dollar, they contribute to the up-ward spiral in oil prices. At the same time, countries with favorable trade balances that lack their own energy resources are rapidly moving to secure the energy they need, again shifting U.S. dollars into oil and other commodities, further driving up prices.

How should the United States respond? The worst response would be to try to stem the flow of imports by restricting free trade, or to try to control global energy prices—a mission as futile as trying to control the value of the dollar. The next worst solution is the laissez-faire attitude of business as usual. Instead, the United States needs to launch an aggressive program of opening up new energy sources in North America for oil and gas while developing renewable sources. At the same time, we need to reduce energy demand through improved efficiency and become much more aggressive in increasing exports by unleashing U.S. innovation.

Could all this lead to a global recession?
Bart van Ark, chief economist of The Conference Board and professor of economics at the University of Groningen in the Netherlands

The international fallout of the crisis in U.S. financial markets has fueled concerns about a global recession. While financial volatility seems to have moderated, there is still substantial risk around the world. Credit spreads—the difference between riskier and safer debt—remain wide in the United States and Europe, and stocks in emerging-market countries are weak. Given the huge amount of global liquidity, simply preserving wealth continues to be a major preoccupation for investors.

Global inflation is another threat. The recent spikes in the price of oil, metals and food are at least partly related to the repackaging of futures contracts into exchange-traded funds, which are readily bought and sold like mutual funds, creating new liquidity. Such bubbles will ultimately burst or at least deflate. The process has begun: when the price of oil rose to $130 a barrel in late May, investors retreated and the price began a downward trend. Nevertheless, it may remain uncomfortably high, at around $100 a barrel, for some time. This will increase pressure on the United States to focus on greater energy efficiency and alternative energy sources—two new sources of growth.

Good news: the economy isn ' t structurally weaker
John Rowe, CEO of Exelon, a Chicago utility holding company

While I am moderately optimistic about a rebound during the second half of 2008, until we see sustained job creation, recession will be a risk. We have had some success in managing the credit crisis; nevertheless, it has stressed our financial institutions. The federal government has taken action to support the U.S. economy, but the tools that worked well in the past may not be as effective today. Still, these things are cyclical, and I do not believe that the economy is structurally weaker than before. For example, the United States has faced high energy prices before; the response will lead to a more sustainable and secure economy in the long run.

Emerging economies—especially China—are still growing robustly, and they are keeping key costs of the electricity business high. The price of coal produced in the Eastern U.S. has more than doubled since last fall, largely because of higher international demand. In 2006, China alone added more than 90 gigawatts of new coal generation to its grid—almost the equivalent of all the energy produced by U.S. nuclear plants. This international demand for new electricity is rapidly pushing up the cost of building the new power plants we so desperately need here.

Trade imbalance improves
Jim O'Neill, chief economist Goldman Sachs

During the second and third quarter of this year, there should be some benefit from the fiscal stimulus that was introduced a few weeks ago. If there is not, that will be troubling Of course, there is a strong case that once the stimulus fades the consumer will start to weaken again anyhow. Two things will be crucial. Oil price increases are finally starting to discourage oil consumption. If they continue to rise, then the U.S. consumer will face even more headwinds. On the other hand, if they ease—which is what I suspect will happen—this could bring some very welcome relief. The second thing, which hasn't received enough attention, is the impressive improvement in the trade balance. That is likely to continue and is giving the economy more support than many seem to realize. Moreover, the signs still look good for exports. The May Institute for Supply Management report showed export prospects at a 3-year high.

It seems to be quite clear that the world no longer catches influenza when the United States catches a cold. This is, of course, because of the emergence of the BRICs—Brazil, Russia, India and China. According to our calculations, these four economies now make up over 15 percent of global GDP in current American dollars (the United States accounts for 30 percent of global gross domestic product). So far, this decade, they have contributed one third of all the global demand. In the 1990's, they would have been much less relevant. Using each country's retail sales data, and adjusting for its share of global gross domestic product in 2007 the BRIC consumer contributed around 1 percent to global gross domestic product, about double the U.S. contribution. Most recently, China reported for April that retail sales grew by 22 percent from last year, the highest jump for over 10 years (adjusted for inflation, we think that the increase was about 13.6 percent). This is dramatically more sales growththan we've had in the United States, and suggests that if there were ever a good time for American manufacturers to be challenged, then maybe this is "it": the Chinese consumer is buying. It sometimes seems to me that the United States is going through a "perfect" adjustment of its well known imbalances. People should not lose sight of this. U.S. exporters clearly haven't!

Three years ago, we applied our 2050 BRIC growth "dream" projections to energy markets, and concluded that energy demand would be very intense between 2005 and around 2017-2018. Given the lack of investment in producible oil, this made us think that oil prices were highly likely to go through a sustained bull period. However, recent evidence suggests that global oil demand has slowed quite a lot, and not just in the United States. It might well be that energy efficiency is improving more than many realize. If that is true,this is, course, one of the good aspects of higher prices. In any case, I am far from sure thatoil will hit $200 a barrel.As we've seen, even at $135 the political backlash has been rising, and now there are growing efforts by policymakers to at least get rid of speculation. The desire to keep oil prices downis partly what's been behind the fresh "strong Dollar" comments coming from the Treasury and the Federal Reserve early this month. If those political efforts fail, and supply disruptions cause oil prices to go to $200, I think the near term impact on the United States would be negative. Longer term, that may not be a bad thing, as it would be highly likely to boost energy efficiency and conservation.

America's economy closely tied to the world
Edward Gresser, economist, Public Policy Institute

There's been talk about the U.S. economy "decoupling" from the global one. Actually, the United States isn't on the verge of a divorce, or even close to a trial separation, from the rest of the world. We're just changing the terms of the marriage.

During the 1990s and the early years of this decade, American industry and shoppers powered the rest of the world. Fast domestic growth, a high dollar, low savings and rising imports made the United States the world's market. Excluding oil, Americans bought $835 billion worth of the world's goods and services in 1995 and $1.7 trillion in 2005. Now the United States has a touch of the flu, and the shopping binge is over. Our import bill (again excluding oil) is flat and may be falling by the end of the year. But while others may sniffle as we sneeze, they probably won't catch cold because others are picking up the slack. China's merchandise imports alone have jumped by $296 billion since 2005 (American imports grew by $283 billion). The European Union's imports from the rest of the world grew even faster. This gives South America, Southeast Asia, Africa, the Middle East, Japan and Korea an alternative to reliance on the United States for growth. So foreigners depend less on us than they did in 1998 or 2003.

Meanwhile, we depend more on foreigners. This year, American farmers, manufacturers and service providers will hit a trio of round-number records: $100 billion in farm exports, $1 trillion in factory exports, $500 billion in services exports. Exports of airplanes, bulldozer parts to India, soybeans and cars to China, medical gear to Brazil and services to Europe are all booming. With our domestic financial sector, real estate, construction and retailing sectors contracting, exports have been America's only source of private-sector growth since mid-2000, and so far have kept the United States out of a deep recession. In fact, for 2008, exports are likely to account for 12.5 percent of GDP—the highest figure in modern times, and likely the highest since John Adams' presidency ended in 1796.

World is more interconnected than ever
Scott Evans, executive vicepresident of TIAA-CREF, a financial services firm for nonprofits

As asset managers we see the world becoming more connected. International trade is now as large as a proportion of world GDP as it's been for a century. Countries in Asia, Latin America and the Middle East are becoming stronger economically and even more interdependent with the developed world than ever before. With the United States looking to these countries for basic manufactured goods and other products, and the rest of the world looking to the United States for sophisticated services and entertainment, we grow more interdependent. Those trends present significant economic and political challenges as well as enormous investment opportunities. At TIAA-CREF, we began investing the pension assets of our 3.4 million customers overseas more than 30 years ago. As global economic integration intensifies, we will continue to look for opportunities for our clients to diversify their portfolios across international boundaries. By participating fully in the international economy, our investors can benefit from new sources of return as well as diversify the risks associated with narrow economic trends in the United States.

Pressure is on for Americans to cut back
Peter Perkins, global strategist of BCA Research

It's important to keep in mind that the world is slowing almost everywhere, including in Europe and China. It's true that there are no signs yet that Europe will succumb to a recession. The German economy is humming along because it produces high-quality machinery geared toward investment and infrastructure development, which have been in strong demand in China, India and the Middle East. But Italy is in recession because it tends to compete against Asian producers, and the strong Euro has hurt them. Spain has slowed because housing construction has gone from boom to bust. China has peaked. Partly that's because Chinese exports to the United States have cooled, but the government has also hiked interest rates and raised reserve requirements to engineer slower growth, downshifting from 11.5 percent growth to 10 percent, with about half the change coming from the loss of exports to the United States. Inflation is above 8 percent, and the government thought that there was overheating in some industrial sectors. China is worried that three or five years down the road they'll end up with gluts. Slowdowns around the world will hurt the United States.

But any reverberations on the United States from a slowing China, for instance, will be swamped by how the U.S. housing market decline and consumer response play out. We don't see any evidence that the United States will rebound materially in the second half of the year. Income growth is slowing, employment is contracting, food and energy prices are eating up an ever rising share of disposable income and you have no savings and declining household wealth.
So far the American consumer has not really cut back—but the pressure is to do so. People thought it was OK not to save when they saw their wealth grow with rising house prices. Now people are thinking: "I don't save any money and my net worth is starting to decline." Initially people are tapped out but eventually they restructure their liabilities so they can begin to save again.

Rebate checks won't have much impact
Nariman Behravesh, chief economist, Global Insight

Any rebound we see from the tax rebates will probably be completely eroded by the rise in gasoline prices. In other words, money given by the U.S government to U.S. consumers will end up in the coffers of governments in Saudi Arabia, Iran and Venezuela, rather than in the hands of U.S. businesses. And once the stimulus from the rebates has run its course, economic growth could be near zero or even slightly negative. Right now, companies that export to emerging markets—which have shrugged off the near-recession in the United States in part because of high commodity prices—are doing well. Aircraft, high-tech, chemicals and other raw materials are all benefiting from the strong growth overseas.

Oil at $200 a barrel would likely trigger a recession. But the economy would adapt: consumers and businesses would conserve—big time—and new sources of both conventional and alternative fuels would come to market, bringing prices back down. Markets work. In commodity markets, however, the adjustment can take years because of the need for new technology