- Reaction score
- 5,943
- Points
- 1,260
There is, happily in my view, no consensus amongst the leaders of major economies about what (if anything) should be done about the global economy according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:
http://www.theglobeandmail.com/report-on-business/international-business/chinas-central-bank-sees-very-low-risk-of-hard-landing/article21075153/#dashboard/follows/
I agree that we, the OECD countries (plus a few) need to avert "the very real risk of a prolonged period of subpar growth.” The question is: How? The German prescription, austerity, isn't working; the US prescription, printing money, isn't working. Does Keynes have the answer? maybe, if we could get past the myths about what John Maynard Keynes might have said and read his words again. There is, still, a case for stimulus, but it must be the sort of stimulus that can be switched on and off - i.e. it cannot be any sort of social spending, and it should be financed by long term bond sales ... that means, de facto public works, mostly maintenance of public infrastructure: roads, railways, seaports, airports, sewers, sidewalks and so on. Increased defence spending, financed from tax revenues but without tax hikes, is also a choice, albeit, in pure economic terms, a decidely second best choice.
http://www.theglobeandmail.com/report-on-business/international-business/chinas-central-bank-sees-very-low-risk-of-hard-landing/article21075153/#dashboard/follows/
IMF warns global economy at risk; calls for bold action
KRISTA HUGHES AND LEIKA KIHARA
WASHINGTON — Reuters
Published Saturday, Oct. 11 2014
The International Monetary Fund’s member countries on Saturday said bold action was needed to bolster the global economic recovery and they urged governments not to squelch growth by tightening budgets too drastically, although Germany poured cold water on the idea of a new global “crisis.”
With Japan’s economy floundering, the euro zone at risk of recession and even China’s expansion slowing, the IMF’s steering committee said focusing on growth was the priority.
“A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high,” the International Monetary and Financial Committee said on behalf of the Fund’s 188 member countries.
The Fund this week cut its 2014 global growth forecast to 3.3 percent from 3.4 percent, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world’s central banks.
The IMF has flagged Europe as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund’s fall meetings.
European officials sought to dispel the gloom. European Central Bank President Mario Draghi said the drag from fiscal tightening in the euro zone was set to fade, while German Finance Minister Wolfgang Schaeuble downplayed the idea that the region’s largest economy was at risk of recession.
“There is no reason to talk about a crisis in the global economy,” Schaeuble said.
The IMF committee called for fiscal policy flexibility, but efforts to provide more room for France to meet its European Union deficit target looked set to founder on Germany’s insistence that the agreement on fiscal rectitude was set in stone and that the bloc would not be writing any new checks.
STORM CLOUDS GATHER
The United States has been a relative bright spot in the otherwise darkening global economic picture, and investors have rushed into dollars as a result.
Still, while U.S. growth has picked up, soft inflation and wage growth suggest the slowest-ever postwar recovery is not delivering a sustained boost to demand, and concerns are growing that the global slowdown will undercut the U.S. economy as well.
Top officials from the U.S. Federal Reserve highlighted growing risks, with the central bank’s No. 2 saying the global slowdown could delay plans for a U.S. interest rate hike.
“In determining the pace at which our monetary accommodation is removed, we will, as always, be paying close attention to the path of the rest of the global economy and its significant consequences for U.S. economic prospects,” he said at a conference of the Institute for International Finance.
The IMF panel urged nations to carry out politically tough reforms to labor markets and social security to free up money to invest in infrastructure to create jobs and lift growth.
“Our key concern is to look ahead so that we avert .... the very real risk of a prolonged period of subpar growth,” said Singaporean Finance Minister Tharman Shanmugaratnam, the panel’s chairman.
The committee also called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. While not naming any central banks, the warning appeared aimed at the Fed, which is set to end its current bond-buying program this month. Its next step, expected in mid-2015, would be to raise rates.
The Fed has debated a change to its commitment to holding rates near zero for a “considerable time” at its recent policy meetings, but is stepping gingerly to avoid roiling financial markets. It does not want a repeat of the “taper tantrum” it touched off last year when it signaled its easing of monetary policy was drawing to a close.
I agree that we, the OECD countries (plus a few) need to avert "the very real risk of a prolonged period of subpar growth.” The question is: How? The German prescription, austerity, isn't working; the US prescription, printing money, isn't working. Does Keynes have the answer? maybe, if we could get past the myths about what John Maynard Keynes might have said and read his words again. There is, still, a case for stimulus, but it must be the sort of stimulus that can be switched on and off - i.e. it cannot be any sort of social spending, and it should be financed by long term bond sales ... that means, de facto public works, mostly maintenance of public infrastructure: roads, railways, seaports, airports, sewers, sidewalks and so on. Increased defence spending, financed from tax revenues but without tax hikes, is also a choice, albeit, in pure economic terms, a decidely second best choice.