Revolts From Wisconsin to Libya Pose Economic Threats

Americans are more confident about the state of the economy than at any point in the past three years. But the world may soon burst their bubble.

The Conference Board said today that its consumer confidence index for February leaped to 70.4 from a level of 64.8 for the previous month. Though still a bit weak by historic standards -- a level of 100 represents confidence levels of 1985 -- that's the most optimistic reading since February 2008.

And economists cheered the index as a sign that consumer spending, by far the biggest driver of U.S. economic growth, will grow more robust in the coming months and with it the prospects for a long-awaited surge in hiring for this job-hungry nation.

Lynn Franco, head of research for the Conference Board, credited consumers' improving outlook for the current business and labor market conditions, and growing optimism for the future.

But that optimism may already be clashing with what Americans see on their televisions.

In the Middle East, the sweep of revolutionary zeal has roiled governments from the Persian Gulf across North Africa to the Atlantic. It now threatens the 40-year grip of Moammar Gadhafi over Libya, a major OPEC producer that reportedly suspended oil shipments today and declared a force majeure nullification of its export contracts.

As a result, gasoline prices are soaring and are expected to keep climbing.

According to AAA, the national average is $3.171 per gallon, up 5 cents from a week ago and more than 50 cents a gallon from a year earlier. In many states driving is already much more expensive. The current average gas price per gallon in California is $3.565.

At home, government workers are in revolt, from Ohio -- where Republican Gov. John Kasich wants to end their collective bargaining rights -- to Wisconsin, where Republican Gov. Scott Walker is trying to cut their benefits and end collective bargaining rights. State and local governments across the country are struggling to close historically high budget gaps, and resistance to the pain of spending cuts is starting to grow.

A similar dynamic risks paralyzing Washington, where President Barack Obama and Republican congressional leaders express confidence in their ability to avoid an imminent government shutdown but have shown no willingness to bridge the huge policy disagreements now looking an awful lot like gridlock.

Meanwhile, the employment epidemic has shown no signs of significantly improving, the housing market has yet to recover from the recession, and neither the Federal Reserve nor the Obama administration nor the divided Congress is in a position to provide new economic remedies.

To top it off, the rising energy prices and a combination of surging demand for wheat, cotton, metals and other commodities around the world have ratcheted up the threat of inflation despite the economic weakness.

A smaller and less prominent weekly survey of economic confidence from Gallup suggests some Americans already have a more sober outlook than the one portrayed by the Conference Board.

"A deteriorating unemployment situation; increasing gas prices; expectations that food and energy prices may go higher; the battle over government spending in Washington, D.C.; the confrontation over collective bargaining in Wisconsin; and the chaos in the Middle East could all be playing a role," said Dennis Jacobe, Gallup's chief economist. "Optimism is no better now than it was a year ago, also suggesting that little progress has been made economically over the past 12 months."

Jacobe told AOL News that when Americans watch the political battles in Washington and the statehouses, the uncertainty over health care and lost benefits hits home.

"What happens in a lot of these cases is that people identify with it and say, 'What if that happens to me?' " Jacobe said.

When consumers aren't confident, they don't spend, contributing to what has been a vicious circle in recent years since fears about consumer spending lead corporate leaders to be cautious about hiring.

Investors, too, are growing skittish. The Dow Jones industrial average today fell 178.46 points, or 1.4 percent, to 12,212.79, amid the reports out of Libya.

Jacobe notes that even before the mortgage meltdown swung into full force and kicked off the 2008-2009 financial crisis, a surge in oil prices was setting up the recession.

"In 2008, everyone thought things were hunky dory," he said. "What people aren't picking up on now is the surge in energy prices and gas prices."

The International Energy Agency -- a think tank for the U.S., Europeans and other industrial economies -- said today that it is closely watching the evolving situation in Libya and "stands ready, as always to make oil available to the market in the event of a major supply disruption."

But "at present, we are not in a situation where that is necessary," the organization added.

Still, the volatility in the Middle East if anything is spreading. Bahrain, Iran, Yemen, Algeria and Morocco are all experiencing varying degrees of unrest.

George Friedman, head of the private political intelligence provider Stratfor, compared the current "wildfire" of uprisings with earlier revolutionary periods such as the 1848 revolts around Europe, the global student unrest of 1968 and the 1989 topplings of communist governments across Eastern Europe.

Friedman noted that "it is a country-by-country matter now, with most regimes managing to stay in power to this point."

He speculated, though, that 1848 may be the best model, with the Muslim world not undergoing "massive regime change as in 1989, but neither will the effects be as ephemeral as 1968."

"As you watch the region," Friedman advised, "remember not to watch the demonstrators. Watch the men with the guns. If they stand their ground for the state, the demonstrators have failed. If some come over, there is some chance of victory."

Back in the U.S., while there's no bloodshed or prospect of regime change, the uncertainty wrought by the state and national budget disputes can take a psychological toll on the economy.

"It's a whole emotional thing," Jacobe said. "People take sides on the budget. Some people worry if there's gridlock and the budget won't be taken care of, their children will pay for it."

All the uncertainty causes Americans to worry more about the jobs they have or the jobs they're trying to get.

But there is one thing looking more certain: The economy is still in for a bumpy ride.