An Optimistic World Economy

Link: http://www.economist.com/news/leaders/21570724-world-economy-improving-not-much-some-investors-seem-think-semi-rational

This article opens by suggesting three reasons why we should be optimistic of the world's economy, the first one being the fact that disaster has been avoided. America resisted falling off the fiscal cliff, Europe has shown that they are trying to save the single currency, and Republicans in the U.S. House have announced that they are going to extend the debt ceiling. This should encourage more investment and consumption among firms and consumers.

The second reason offered is because of central banks participating and promising to buy government bonds.

As put in the article, "...it is no surprise that investors are piling into riskier assets. Indeed, that’s partly the point: higher share prices make investors more likely to boost consumption."

The third reason is the result of the apparent increasing growth of GDP in China. In addition to this, America's housing market is shaping up.

It then continues to, however, point out holes in the world economy that may widen. It puts forth that economic policies are still flawed and that the optimism of the housing market in America may not cancel out other things such as an increase in payroll taxes on all workers. In addition, there could be overoptimism about the involvment and pledge of central banks in bonds. Furthermore, the FED even worries of the possible costs of such an action. Then there is the question of how Europe plans to revive its economic growth.

This seems to imply that the optimism is good, but there is still much work to be done. We shouldn't get too comfortable. Problems could potentially arise from within or beside these apparent "good things," challenging an optimistic viewpoint.