It is difficult to determine the biggest threat to our economy at this time. There are so many pitfalls that it is perplexing to select the greatest risk.
However, if one believes in the classics, the foremost danger was what the Greeks listed as hubris, self-pride. Not only is this true for the economy, it most definitely applies to everything in life. Individuals and politicians who fall victim to hubris are headed for a downfall. Politicians who believe in their own omnipotence are courting disaster.
According to minutes of a World War II-era German General Staff meeting, members tried to dissuade Hitler from invading Russia. He replied emphatically, asking how they could argue with him after his spectacular victories for the year to date as exemplified by Poland, Denmark, Norway, Holland, Belgium and France. History is replete with illustrations of that kind of arrogance. In the financial sector those who believe that they are infallible soon get over-extended, make purchases that they can ill afford, and then their career thereby is destroyed.
Up until recently the most attention was paid to the stock market. The link becomes obvious. The trouble there led to the 1929 crash and the Great Depression. Also it is referred to in the dotcom surge in housing, share prices, and the ensuing economic slump. Still, in some cases, a stock market boom entailed a great deal of trouble, but not enough attention was paid to excessive debt.
According to the Bureau of Economic Research, the soaring housing market poses a serious threat to the economy as it has been fueled by easy credit. The stock market too is a problem even though only a small percentage of the population participate in the stock market. However, a downturn there has a depressing effect on the economy. All feel less wealth, the so-called wealth effect. That curtails general spending.
If our economy and prices are financed by excessive debt as is now the situation, corrective steps should be taken as the inevitably higher interest rates will have a devastating effect on the economy. However, let us hope that governments start to show some courage and act responsibly by curtailing stimulative measures. Given history that may be only wishful thinking.
This still leaves the question of what governments do after a speculative bubble bursts. That usually has been a path to backstop the economy with even easier credit and perhaps more government spending.
Yet in the severe 1920-21 depression the British Government did nothing to revive the economy. Also in the worldwide Great Depression the British took no remedial actions, but in both instances the recovery there was superior to that in the United States where government intervention entailed huge deficits.
Hence it seems that the best course for us is to let the economy recover on its own, but perhaps to provide relief to the truly destitute.