The world prays for an economic miracle

jackalope

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Jan 2010
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The world prays for an economic miracle
By Ben Chu, Economics Editor in Washington
Saturday, 24 September 2011


After an incredibly volatile day on world markets, the head of the International Monetary Fund, Christine Lagarde, warned of a looming "collapse in global demand" which threatens to push economies around the world into a new recession.

"Dark clouds over Europe and huge uncertainty in the United States" mean that "the challenge could not be more urgent", she told politicians and leading economists in Washington, who are meeting there in an attempt to tackle the world's economic woes.

Calling for immediate action to support global growth and stabilise the international financial sector, Ms Lagarde said: "The actions I am calling for today are not for the coming years – they are for the coming months."

The stark warning followed the failure of the G20 group of leading economies to convince investors that they would avert a new global banking crisis. A communiqué from G20 finance ministers and central bank governors pledging to "take all necessary action to preserve the stability of banking systems and financial markets" failed to deliver a significant lift to investor sentiment. Stock markets in Europe and the US picked up slightly by the close of trading yesterday, but generally failed to recover the large losses experienced earlier in the week.

The Chancellor, George Osborne, who is in Washington for the IMF summit, attempted to ratchet up the pressure on his European counterparts, warning that they had six weeks to agree on radical measures to address the eurozone sovereign debt crisis before the next G20 meeting in November in Cannes. "There is now a quite clear deadline set which is the Cannes summit," he said. "The eurozone has six weeks to resolve this political crisis." The Chancellor claimed that European finance ministers are finally waking up to the fact that they must act faster to resolve the Continental debt crisis, saying that the "leading lights of the eurozone are aware of the fact that time [is] running out for them".
(snip ... )

Despite instructing European leaders to take radical action in the face of the looming economic emergency, Mr Osborne refused to budge from his own radical deficit-reduction strategy. The Chancellor rejected claims he is contributing to the deficiency of global demand with his determination to wipe out the bulk of the UK's budget deficit by the end of this parliament. "This is a debt crisis. You can't separate debt and demand," he said. "They are intricately linked. Unless you deal with debt you can't deal with demand."

The Chancellor also stressed that, despite his opposition to the UK ever joining the single currency, it is in Britain's national interest for the eurozone to survive the present crisis: "I'm very clear that a break-up of the euro is bad for Britain ... It is in Britain's interest that the euro works, that it's stable."


more: The world prays for an economic miracle - Business News, Business - The Independent


"Despite instructing European leaders to take radical action in the face of the looming economic emergency, Mr Osborne refused to budge from his own radical deficit-reduction strategy. " That is not an encouraging sentence....
 

Rasselas

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Feb 2010
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"Despite instructing European leaders to take radical action in the face of the looming economic emergency, Mr Osborne refused to budge from his own radical deficit-reduction strategy. " That is not an encouraging sentence....
Translation: "I'm afraid we're headed to exactly where I've pointed the car...."
 
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Jun 2011
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We are ruled by fools.
Well, its not 'we' its the Europeans and yes, they were ruled by spendthrifts and now that the sovereign debt crisis looms large and the realization that ultimately you simply cannot live beyond your means forever starts to occur to people; yet its the 6 months of UK austerity and not the decades of issuing bonds and now that the piper's come due instead of lambasting those who would bankrupt our proud nations; you lambaste those as fools who would correctly craft a sustainable fiscal path.
 

jackalope

Former Staff
Jan 2010
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Well, its not 'we' its the Europeans and yes, they were ruled by spendthrifts and now that the sovereign debt crisis looms large and the realization that ultimately you simply cannot live beyond your means forever starts to occur to people; yet its the 6 months of UK austerity and not the decades of issuing bonds and now that the piper's come due instead of lambasting those who would bankrupt our proud nations; you lambaste those as fools who would correctly craft a sustainable fiscal path.
They are creating a path to recession and stagnation. Which is not sustainable.
 
Jun 2011
1,474
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They are creating a path to recession and stagnation. Which is not sustainable.
If you make 20K and spend 25K accumulating 5K in debt per annum, when you stop accumulating debt and start spending 15K plus your 5K debt service; it feels like it sucks because spending 15K instead of 25K is a significant difference. Look at Argentina, look at Iceland. That's where we are going

Right now we're importing $1.8 trillion and exporting 1.0 trillion plus or minus, to make up that difference we're exporting empty containers and bonds. And when we stop borrowing (just a question of whether we stop or the creditors stop us), the foreigners, who spend their time, labor and capital to produce those $1.8 trillion of products that we like so much are going to WANT something for them; the dollar will fall and the rebalancing will occur (just like it is in the UK, "The trade deficit has been narrowing consistently in recent months, the figures showed. The shortfall over the three months to April was £22bn, compared with a £26.5bn trade gap between November and January.")

The more bonds you issue the worse it will be.

This is the sovereign DEBT crisis.
 

jackalope

Former Staff
Jan 2010
51,139
17,672
Maine
If you make 20K and spend 25K accumulating 5K in debt per annum, when you stop accumulating debt and start spending 15K plus your 5K debt service; it feels like it sucks because spending 15K instead of 25K is a significant difference. Look at Argentina, look at Iceland. That's where we are going

Right now we're importing $1.8 trillion and exporting 1.0 trillion plus or minus, to make up that difference we're exporting empty containers and bonds. And when we stop borrowing (just a question of whether we stop or the creditors stop us), the foreigners, who spend their time, labor and capital to produce those $1.8 trillion of products that we like so much are going to WANT something for them; the dollar will fall and the rebalancing will occur (just like it is in the UK, "The trade deficit has been narrowing consistently in recent months, the figures showed. The shortfall over the three months to April was £22bn, compared with a £26.5bn trade gap between November and January.")

The more bonds you issue the worse it will be.

This is the sovereign DEBT crisis.

microeconomics (a family unit) and macroeconomics (nation states) are not the same thing. What is good on the micro level, is not good on the macro level. We are facing a collapse of demand. Pulling back on one source of demand exacerbates that problem and is dangerous. Austerity during a recession, or before a recovery has taken hold and stabilized, is not good. We used to know this. We've done this before. And we got a depression out of it.
 
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