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Does Obama Have His Eye on the Right Economic Crisis?

The top ten economic worries to choose from -- and unemployment's only mid-pack.

In the United States this week, the focus of speeches and political debates will be jobs. It's not surprising. With almost 30 million Americans out of work, under-employed or so frustrated that they've stopped looking for a job, it's the issue that is widely considered to be the game-changer as far as next year's presidential election is concerned.

But as urgent as the jobs crisis is, it is only one of a stunning array of economic crises and potential flashpoints competing for the attention of top politicians and making investors extremely uneasy. You see, the main contagion problem confronting the global economy is not that one of these economic troubles will erupt in one place and spread to other countries -- but rather that there will be a domino effect among these crises, even as each spreads geographically.

Here are the top 10 in terms of their apparent relative urgency and potential global impact at this moment:

10. The U.S. Deficit

This is an issue that has virtually no urgency. That doesn't mean it is not important. It is. But right now, it is at the back of the line and if the U.S. punted on it (as we will) for the next 18 months, it would not be the end of the world -- provided it looks like we really have plans to address the problem and we are aggressively using the moment to produce deficit-reducing growth as best we can.

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9. Brazilian Inflation and Real Estate Bubble

Brazil is overheated. Its currency is overvalued. Money is pouring in while its industrial base is being hollowed out. There are real estate bubbles in Sao Paulo and Rio de Janeiro and other cities, tied to the biofuels boom. And if it looks like the government is losing control of this issue it could spook investors -- and if that that produced a market spike it could have a contagion effect in the region and among emerging markets.

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8. Threat of Middle East Unrest to World Energy Supplies/Inflation

A bigger worry is that upheaval in Syria or elsewhere in the Arab world threatens to spread and oil markets get worried. Or worse, that tensions between Israel, the West and Iran start to spike. Or between Israel and its neighbors over Palestinian statehood. Or due to.... You get the idea. This region is a tinderbox and all sparks risk a spread to energy supplies and costs worldwide. This could trigger unrest elsewhere if it fuels commodity inflation or threatens stability in...

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7. Threat of Chinese Unrest, Bubbles, or Inflation to Chinese Economy

China, where high oil prices have already produced one big truckers' strike this year. Of course, anything that threatens China's growth -- including inflation or the bursting of its own bubbles -- threatens the world. Germany, notably, is dependent on exports to China and since the EU is dependent on Germany, well, you do the math. Right now, most semi-positive outlooks on the world economy are counting on steady, high Chinese growth. If it doesn't happen, if China cools, all bets are off in the EU, the United States, Japan, and global growth as a whole. First sign of that and markets will be spooked.

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6. The U.S. Housing Crisis

Take an aging country with no savings that is depending on the value in their homes to see them through their retirements. Then crush the value of their homes. You would think that would be a priority issue for the U.S. government, especially if that crisis triggered the last banking crisis and the worst recession in three-quarters of a century. But you would be wrong. The crisis goes on, prices remain depressed and consequently Americans consume less. And lots more Americans own houses than are out of work if you're looking for political and consumer confidence impacts. But, still.

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5. The U.S. Jobs Crisis (And Long Term Structural Issues)

The jobs crisis is more urgent for several reasons. First, if the politicians think their futures depend on it then they will focus their efforts on it. That could be good if it were productive, not so good if it weren't (it won't be) and worse if it distracts from other more urgent issues (it will.) The bigger issue than high unemployment rates however, is the sense that they are symptomatic of deeper structural flaws in the U.S. economy. No net new jobs in a decade suggests the United States may be in a Japan-style slump and that the world's market of last resort may not be what it used to be. And that will keep U.S. markets edgy for the foreseeable future. (By the way, America's current performance is misleading. It's actually artificially enhanced: the rest of the world is pouring money into the United States because Japan and Europe are in such deep water. Imagine if there were actually a decent safe haven for that money.)

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4. Global Banking Crisis, Part II (Son of Lehman Brothers)

While this one is tied up in the Eurozone crises (see further down the list) it deserves to stand on its own because most of the big problems with global finance that were revealed in the last crash haven't been fixed. Most haven't even been addressed. There are more too-big-to-fail banks. The stress tests performed on those banks (especially in Europe) have largely been shams. There are more derivatives with more hidden counterparties. The big paychecks and incentives to bend the rules are back. The regulatory regimes aren't much stronger. And a shock from almost anywhere risks taking down a big player and triggering a real bloodletting.

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3. Eurozone Crisis, Part I (Greece and Smaller Economies)

This is the least of the Eurozone's three crises. That doesn't mean Greece is out of the woods. (Look at the huge spreads between say, Greek and German debt for proof of that. Short-term money is through the roof. The market does not believe in the bailouts.) And another round of crisis here -- which could come as the Finns or even the German parliament say, er, no more, not without collateral or something to that effect -- would take skittish markets and send them running to the exits of Europe. Banks could fail. The Eurozone leaders would lose their last shreds of credibility. Other countries could see sell-offs of debt.

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2. Eurozone Crisis, Part II (Need for Structural Reforms)

Of course, the problem with the Greece crisis (as the EU learned from the Iceland and Ireland crises) is that containing it isn't the same as curing it. The EU needs fiscal union. It is not getting there soon. If it doesn't and if the European Central Bank continues to circumvent its rules by buying debt via the back door and if ... well, the point is that bigger than the problem with Greece is the fact that the EU still isn't biting the bullet when it comes to establishing and imposing fiscal discipline or creating a real culture of shared responsibility for one another across intra-European borders. Should markets think that the next victim is not a country but the Eurozone or the euro itself, sell-offs and instability and long-term recession seem likely.

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1. Eurozone Crisis, Part III (Italy, Spain, and Beyond)

The EU stepped in to help Italy. Almost every day since markets have pounded Italian debt. These two countries are huge (Italy is the world's third largest issuer of sovereign debt) and their problems are very different (Spain, for example, has a big real estate problem) and one-size-fits-all solutions won't work. (The one-size-fits-one solutions don't seem to work either.) Right now the biggest problem facing the world is that they start to tremble. If that triggered a new round panic selling in Euro markets that could quickly bring down banks and usher in the Black Tuesday (or Friday or Monday or Wednesday or Thursday) of 2011.

Could we put Japan on this list? Yes, but markets have discounted for its problems already. Could we add a possible collapse of gold prices? Absolutely; that's going to happen someday and it isn't going to be pretty. But when, who knows. Gold's price is a sign of the level of fear in the markets and it seems unlikely that will go away any time soon. Could we include worldwide inflation creeping up? Yes, definitely. In fact, in my view, it's a certainty. Developed countries with big deficits and few stimulative tools in their toolbox have few alternatives. But it probably won't hurt much if it stays moderately low. Still, we've got to watch for it. Could there be a problem someplace else? Well, the troubles of the Swiss franc this week indicate there certainly could. And will be.

So don't obsess about the specifics of the above categories. Don't worry through the order of the list too much. You don't have time. The world economy is in a mess. It's time to be hollowing out your mattress and tucking a few krugerands into your undies. I'm not saying you should panic. Rather, I think you should be prepared. Because the only things we know for certain is that we don't know where the next problem will come from but that wherever that may be, it is more than likely that our political leaders aren't up to anticipating it or managing it effectively.

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