The New York Times / August 11, 2009 Breakingviews.com. Pushing the Limits of Stimulus Plans By EDWARD HADAS and ROBERT CYRAN
... No one knows whether the current mix of monetary and fiscal policies will be enough to bring the recession to an end. But it is not too soon to draw three financial and economic lessons from the crisis. First, imbalances matter. When inflation was low and gross domestic product growth steady, many economists thought all was right with the world. But the great two-sided global dislocation — the proceeds of huge trade surpluses largely invested in global fixed-income [bond] markets — helped make credit too cheap and all economies more vulnerable to financial disruption. Second, debt is dangerous. Central banks, investment bankers and politicians all signed up to the cult of debt. But companies that went for balance-sheet “efficiency” [i.e., high leverage?] and homeowners who took on huge mortgages were caught. It turns out to be much harder to deleverage than to leverage an economy. Third, globalization does not work by itself. Free movement of capital has facilitated rapid shifts in crossborder capital flows, currency values and prices of commodities. Economies benefited when growth soared, but were left vulnerable to painful disruptions. Trade binds countries, but shifting terms of trade can divide them and turn growth into decline. The three lessons can be boiled down to one: overstimulated finance leads to economic woe. Sadly, world leaders do not seem to have learned that fundamental lesson yet. While trade imbalances have shrunk, governments and central banks are pushing the limits of fiscal and monetary stimulation. [likely, they haven't learned the lessons yet because they appoint people like Summers, Geithner, and Volcker as advisers.] A carefully calculated stimulus plan was probably called for, but the vast programs have been entered into without much consideration of how they will be unwound. The will to establish a new global financial order was strong six months ago, but seems to have melted away. Let’s hope it returns before the next financially induced recession... Copyright 2009 The New York Times Company -- Jim Devine / "All science would be superfluous if the form of appearance of things directly coincided with their essence." -- KM _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
