Halloween is a time for the sort of fear we all enjoy - cheesy horror movies, clever costumes and a general appreciation for the macabre and creepy. Far less enjoyable, though, is thinking about some of the reasons investors may have for fearing the U.S. economy. Unlike ghosts and goblins, some of these fears may prove to be very real and offer more than just a friendly little tingle up the spine.

IN PICTURES: Debunking 10 Budget Myths

1. Crumbling Infrastructure
While the U.S. government has handed out plenty of money over the past three years, relatively little of it has made its way towards bridges, roads, schools and hospitals. That is unfortunate, as the U.S. went through a building boom in the 1950s and 1960s and is now badly in need of repair and expansion. Infrastructure underpins economic growth. Without better public facilities, there will be a long-term drag on economic productivity.

2. High Debt
Of all the problems in the United States, large budget deficits and a growing debt burden are probably the best-known. Public debt is at about $13.6 trillion in the United States, or roughly 94% of annual GDP. That puts the country in uncomfortable company with the likes of Japan, Italy, Greece and Portugal.

What's worse, so much of the U.S. debt burden is unproductive debt - debt acquired not to fund long-term economic projects like roads or education (which can produce a positive return on that debt in the future), but to pay for non-productive discretionary items and social entitlements.

3. High Unfunded Liabilities
High debt is bad enough, but at least that is there for all to see. What is more pernicious is the future burden of the government's obligations under Social Security, Medicare/Medicaid and other social entitlement programs. The present value of these obligations has been estimate at nearly $46 trillion, with the majority of that going to healthcare.

4. Willpower
Perhaps one of the hardest notions to quantify, the United States as a whole seems to suffer from a childish "me wantee" culture. Instead of the do-it-yourself rugged individualism that characterized it for much of its history, America is increasingly beholden to distracting (and circular) social debates and quick-fix solutions from feckless politicians. That attitude is counterproductive to getting real work done, and encourages people to just kick the can down the road and let other people solve the problems.

5. Fear Itself
Like a dearth of willpower, fear cannot readily be quantified. That does not mean that it does not have a serious impact on an economy. Customers who are afraid for their jobs and savings will cut spending. Businesses that are afraid that customers will not spend will cut back on capital investments and hiring - and that will lead to a job and stock market that make consumers even more nervous.

IN PICTURES: Top 7 Social Security Myths: Exposed

6. Risk of deflation
It seems odd to discuss an economy at risk of both inflation and deflation, but that is nevertheless still where the United States seems to sit. Over the country's long history, deflation is actually the norm (or at least it was prior to the 20th century) but that is no longer the case. Prolonged deflation in the United States can feed on itself - people start to expect lower prices, so they hold off on purchases. That leads to companies cutting prices to compete, cutting wages and/or hiring, and having greater difficulty repaying their debts - putting even more stress on the banking sector.

7. Risk of inflation
The Federal Reserve has been very busy expanding the money supply over recent years, and there is a growing fear among some people that there will be an ugly bill to pay in the form of rampant inflation. While government measures of inflation have stayed quite low (and long-term bond rates are likewise low), gold has been on a tear and other commodities are likewise pointing to real inflation. Perhaps an even bigger risk is in the unpredictability of this inflation - monetary easing has not led to inflation so far (due perhaps to a lower velocity of money), but nobody knows how elastic the system is or when inflation might "snap" back. (For related reading, take a look at Timeless Ways To Protect Yourself From Inflation.)

8. Housing
Even as banks report improving credit conditions, the country is not out of the shadow of the housing bubble. A large number of people have seen serious declines in their net worth, and a prolonged economic malaise could lead to another round of foreclosures, further weakening banks and consumer balance sheets. Those who can still afford their homes nevertheless pay a price because it is so difficult to sell a home now in some communities, so workers cannot move around the country to take advantage of better job opportunities. That locked-in population slows the pace of economic restructuring and recovery.

9. Unemployment (and discouraged workers)
Unemployment is normal in a recession, but nevertheless a cause for concern. Not only do eligible unemployed workers rely upon unemployment insurance (straining already-stressed state budgets even further), but some of these unemployed ultimately become discouraged and stop looking for work. Unemployed workers not only face the erosion of their skillset through disuse, but they also miss out on prime earning (and saving) years. Speaking even more broadly, the U.S. economy runs on the wallets of consumers and the larger the number of those consumers without jobs, the thinner those wallets become. (Learn more about unemployment in The Unemployment: Get Real)

10. Under-Saving/Over-Spending
The United States has long promoted a consumer culture (the federal government taxes savings, but not spending). The end result is high personal debt (including credit card debt) and low personal savings. The retirement savings gap in the United States exceeds $6 trillion, and as much as 25% of the population may depend upon Social Security for 90% of their retirement earnings. That feeds into the sizable unfunded liabilities of the Federal government and increases the overall risk to the economy; with thinner cushions of emergency savings, more consumers are at risk of severe economic hardship if they face even a temporary period of unemployment.

The Bottom Line
If there is good news to this list ghoulish list of problems, it is that none of them are carved in stone. If the U.S. populace wakes up and gets real about the problems facing the country, and shows the willingness to take some strong corrective measures, there is no reason that things have to end badly.

For the latest financial news, see Water Cooler Finance: Ghosts Of Economies Past.

Related Articles
  1. Fundamental Analysis

    Examining Mexico's Trillion-Dollar GDP

    Examining the gross domestic product growth and composition of Mexico, the second largest economy in Latin America
  2. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  3. Economics

    Leading Economic Indicators: U.S. Bureau of Labor Monthly Stats

    The Bureau of Labor Statistics' monthly employment figures are a key economic indicator. Here's how they work.
  4. Economics

    Explaining the Participation Rate

    The participation rate is the percentage of civilians who are either employed or unemployed and looking for a job.
  5. Economics

    What Qualifies as Full Employment?

    Full employment is an economic term describing a situation where all available labor resources are being utilized to their highest extent.
  6. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  7. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
  8. Term

    Estimating with Subjective Probability

    Subjective probability is someone’s estimation that an event will occur.
  9. Investing Basics

    Understanding the Modigliani-Miller Theorem

    The Modigliani-Miller (M&M) theorem is used in financial and economic studies to analyze the value of a firm, such as a business or a corporation.
  10. Economics

    Explaining Kurtosis

    Kurtosis describes the distribution of data around an average.
  1. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s ...
  3. Supply

    A fundamental economic concept that describes the total amount ...
  4. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  1. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  2. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
  3. Are Social Security benefits adjusted for inflation?

    Social Security benefits are adjusted for inflation. This adjustment is known as the cost of living adjustment (COLA). For ... Read Full Answer >>
  4. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  5. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  6. What is the correlation between inflation and interest rate risk?

    There is a positive correlation between inflation and interest rate risk. Inflation basically occurs when there is too much ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!