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Matthias Stephan Fifka: Recent comments made by Mirek Topolanek concerning the US approach to the global economic downturn have cast a shadow ahead of the G20 meeting in London. Finding solutions to the current crisis will not be easy, and Topolanek’s remarks may make future agreements even harder to acheive.
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André Budick: Thinking the Unthinkable: What if private banks, who have to work to jumpstart the global economy once again, can’t be saved for the time being? What if only the wholesale nationalization of entire national banking systems is the chance for a fresh new start?
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Nouriel Roubini: The Financial Times recently interviewed economist Nouriel Roubini regarding the current US housing market problem and the potential for an extended US recession. Roubini addresses the outlook of the US economy, mortgages, potential policy action—The Frank-Dodd bill, Fed policy, and the outlook of financial markets.
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Survey by Wall Street Journal: Economists are now debating the extent of the recession rather than its existence. Recent statistics seem to confirm concerns.
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Global Must Read Articles
Europe’s most powerful leaders are now aligned with the Republicans on major international issues. ++ European states disagree with Obama on the appropriateness of his stimulus package. ++ In opposing the quantitative easing program, Romney and Gingrich align with a tight European monetary policy. ++ Europe would benefit from Mr Romney’s opposition to reducing America’s military footprint
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The Great Recession represents an opportunity to reactivate stalled nuclear arms reduction efforts, including ratifying the Comprehensive Test Ban Treaty. ++ Nuclear arsenals are still too large; they are a budgetary albatross that threatens rather than ensures security. ++ The only credible solution is total disarmament; nuclear deterrence is unreliable, especially as the number of nuclear
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President Obama must provide Americans with a clear message on jobs and the economy in his upcoming address to Congress. ++ He should break from Democrats and appeal to voters with a new plan that includes a more wide-reaching stimulus in combination with fiscal restraint. ++ Convincing voters is the key to gaining support in Congress. The only way for the President to overcome Republican
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The world economy risks a double-dip, a second severe recession, thanks to an EU debt crisis, fiscal instability in the US, and slow manufacturing seemingly everywhere else. Policy makers are quickly running out of options to trigger recovery. ++ Now, economies that still have market access should “introduce new short-term fiscal stimulus while committing to medium-term fiscal
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The industrial economies of Germany and China have weathered the global financial crisis much better than their high-consumption, post-industrial American competitor. ++ American capitalism has abandoned its manufacturing sector and promotes a detached and irresponsible financial sector. ++ The result is a competitive disadvantage and the offshoring of America’s most productive jobs. ++
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Although there is lots of talk of green shoots, the recession is not over and the crisis demands that we finish what we started. ++ Stimulus packages are helping to stabilise our economies, but we are still in danger. ++ “Premature removal of the crutches we gave our sick economies could destroy the green shots, destroy investor’s confidence and throw us back into a more severe crisis.” ++ We
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US consumers won’t spend us out of the downturn - they lack the leverage: recession ends the old cycle of the US buying up Chinese goods, fueling global growth, building Chinese savings thus financing US borrowing. ++ Recovery is endangered. ++
China could become the alternative buyer, but so far the low income of families and the lack of a safety net has restrained spending power . ++ We must
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The economic recession demands crisis management that
incorporates not only spontaneous aid measures, but also lays the foundations
for long-term growth. Poor crisis management could have fatal effects on the
long-term prospects of growth. Cases in point are Japan
and Sweden,
who experienced many economic hardships in the 1990s. Japan’s faulty
crisis management strategy led to a limping
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Economic indicators show that the recession in the US could end as early as this month. ++ Consumer spending has increased, and claims for unemployment insurance have peaked. ++ Container imports and exports are both up at two major ports. ++ A bottom has most likely been reached forhome sales and housing starts. ++ More jobs may be still be lost, and there will be more defaults,foreclosures and
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The IMF estimates the fiscal costs of rescue efforts to be high and difficult to obtain. ++ Still, the solid logic remains: the fiscal costs of deep recessions are greater than those of rescuing finance. ++ Choices of how to fix the system entail risks and little hope for amelioration. ++ Managed bankruptcy — with unpleasant risks — makes sense due to the dire effect on incentives of the
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Today’s politics is global as well as local. ++ A global effort is required to “reduce the impact of the downturn and support a sustainable recovery.” ++ Problems in emerging markets and developing countries should not be ignored. ++ Increased funding to the IMF should be agreed by the G20 to increase lending and “prevent the spread of the crisis from corporations to countries.” ++ In addition,
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Europe’s carbon markets are collapsing and this is bad news for climate change. ++ Economics dictates that if the price of a good goes down, demand goes up; this happened with carbon permits, because “if [they] are cheap, and everyone has lots, the green incentive crashes into reverse.” ++ The ridiculously low price of carbon caused by the global recession removes every incentive to buy “costly
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When comparing the recession-prone capitalist system to the recession-free communist system, it is surprising that it is the latter which has collapsed. ++ Despite numerous predictions of its demise, capitalism continues in the twenty-first century. ++ This is because of its power to “re-engineer itself and evolve into new forms that get rid of defects.” ++ The current crisis is
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Klaus Schwab, President and Founder of the WEF, has stated that the 39th forum will be one of convalescence of the world economy. ++ Well, nothing is less sure. ++ Recently the crisis has hit both Asia and Brazil, both expected to be exempt. ++ The biggest problem is that confidence seems to have disappeared among the G20. ++ Behind the numerous statements advocating a global response and
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The economic and political divisions between a “hard core” Northern Europe and a crumbling South are re-emerging in the midst of the economic crisis. ++ Euroskeptics argue that this will eventually lead to a departure of the “South” from the Eurozone, whilst europhiles predict that it will produce an even “wider euro area assuming the debts of the weaker nations.” ++ The
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The US Congress is critical of the way money from the Trouble Asset Relief Program has been used, and adds that the remaining amount should be made conditional on more loans being granted. ++ However, analysts argue that as the financial crisis was caused by a liquidity crisis due to mortgage losses, loan provision will remain depressed for some time. ++ While Congress’ goal of directly
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The Fed’s decision to pour tons of new dollars into the US economy has not staved off recession. ++ The government is in fact the main beneficiary of the huge increase in the monetary base: deposits which the public are too uneasy to borrow have been put into the Treasury to be spent by the government. ++ This is Keynesian economics, characterized this time by unparalleled government
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When President Obama speaks of the current state of the US economy, his rhetoric reveals the gravity of the situation. ++ Yet, his actions fall short of his words, with US analysts arguing that his stimulus plan will do little to address the fast forming “output gap” and the expected upsurge in unemployment rates that will follow from lost production. ++ Whatever the reasons for his
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Obama’s recent appointments have led to the conclusion that he intends to govern from the center. ++ His choices, however, are practical rather than ideological. ++ The centrist team will stabilize and pacify foreign policy and the economy so that Obama can focus on domestic transformation. ++ In fact, the recession will give him a carte-blanche to experiment with the economy. ++ Far from
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Deflation is the financial threat that might catch us unaware. ++ Relief from high food and oil prices is pleasant, but extreme price drops could signal economic havoc. ++ For now, falling prices will suppress inflation (5% in the US and 9% in Asia in 2008), and service industry prices are less volatile than raw goods, providing economic stability. ++ Ultimately, deflation threatens loan
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A US recession is inevitable but stopping global downturn should be political leaders’ top priority. ++ Expansionary policies by the surplus economies of Asia and the Middle East could offset demand decline. ++ Coordinated expansion should include policy that prevents big banks from withdrawing credit overseas and swap lines between the US, EU, Japan and all main emerging markets. ++ The
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The demise of the shadow banking system began last week. ++ This is the financial crisis of the century. ++ Shadow banks are not protected from bank runs, as commercial banks are. ++ A run on hedge funds is highly probable. ++ If these institutions are to be government-insured, they will need regulation in order to avoid any moral dilemma implications. ++ A “severe” US recession is
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Even though the European Central Bank reassures the investors that the euro has great prospects, business activity on the Old Continent is falling and consumer confidence is plummeting. ++ On Friday, the euro had its worst day against the dollar in 4 years and there are reasons to believe this was not a temporary blip, but the beginning of a trend. ++ Analysts were so focused on American
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After 1945, the US was clearly the world’s leader but it took its supremacy for granted and became complacent. ++ Since then, the US has become dependent on foreign oil and relied on debt to finance its economy. ++ American students are behind while universities fill with foreigners. ++ Leadership in technology and entertainment does not provide enough domestic jobs. ++ To reverse this
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With European inflation at its highest ever since the introduction of the euro, many countries are tightening their credit reins in an effort to curb inflation. ++ The world’s central banks are slowly realizing the magnitude of the inflationary threat. ++ It is expected the European Central Bank will raise its interest rates tomorrow, US Federal Reserve also faces greater pressure to raise
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A recent Ipsos Mori poll suggests a gradual loss of interest in the issue of climate change. ++ The specter of recession intensifies political pressure to abandon green policies. ++ Governments try to save the economy and the planet at the same time though these two aims are contradictory. ++ They base their policies on the false assumption that there is a cheap alternative to a green economy. ++
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The US dollar was for a long time the leading global currency against which all other foreign currencies were measured. The downside of this is that as a result, the USA has accumulated a huge trade deficit. In 2006, foreign goods and services purchased by Americans were worth 600 billion USD more than the goods and services they sold abroad. Every day, the US needs to draw on seven billion
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The Fed is undermining global confidence by flooding the economy with new dollars while it should in fact be pursuing direct and targeted intervention. ++ Since US global purchasing power is used for humanitarian, economic or military purposes, a further fall of the dollar will damage US political influence. ++ The rise of transactions in Euros neuters US ability to control financial flows to
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Critics of current US foreign policy point to the Iraq war for the current economic slump. ++ New indicators suggest otherwise. ++ A general rise in material and commodity prices running parallel to high oil prices, reflects growth in Asian consumption. ++ The effects of high demand and low supply, coupled with unsound borrowing in the US, dwarf the negative effects that Iraq has had on the
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The IMF might have prevented the US crisis if it had detected mortgage market vulnerability sooner. ++ Since IMF governance is organized according to the “money for influence” model - most influential members have most leverage - US policies and regulations were not scrutinized or criticized. ++ IMF can only effectively supervise and secure financial stability if power is distributed evenly to
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The differences in transatlantic mortgage systems are causing the Fed and the ECB to deal with housing crisis in contrasting ways. ++ While the Fed keeps cutting interest rates to make up for the huge losses in capital of US banks, the EU is focusing on inflation control. ++ The Fed’s mandate is to guarantee financial and monetary stability - a commitment which may eventually require the
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The Bear Stearns collapse forces Wall Street to finally face reality and end the culture of easy lending. ++ US recession combined with a Democratic president in November will spell protectionist legislation. ++ The biggest threat the American financial crisis will have on the rest of the world will be politicians blaming foreigners. ++ A rebalancing between the dollar and Asian currencies will
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As a reserve currency, the US dollar’s value was only sustainable while the economy was growing. ++ As many economists expect a recession, the Fed is moving aggressively to pump more liquidity into the US banking system. ++ This and increasing trade protectionism are adversely sustaining consumption, hindering capital formation and entrepreneurship, and halting the creation of wealth necessary to
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Soaring oil prices are the result of underestimation of demand, overestimation of supply, depressed production outside OPEC, and the latter’s recent regulation of supply. ++ OPEC’s actions are preventing using oil prices to correct economic slowdown and the drop in purchasing power. ++ Without curbing imports and diversifying its sources of supply, the US
will not be free of the grip of this
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It is wrong to think that China has supplanted America in driving the global economy - the US still contributes 5 times more to the world’s GDP than China. ++ Banks around the world are learning that the US has lived beyond its means and debt may not be repaid. ++ Though a US tax cut may help, it won’t be enough to prevent recession. ++ The extent of the damage may not be known until 2009.
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The US economy is facing a post-bubble recession rather than a cyclical downturn. ++ As homebuilders and consumers - a sector representing 78% of GDP, are being hit the hardest, the Fed’s monetary easing policies which favor consumption are proving ineffective. ++ The focus should be on exports and infrastructure spending instead of attempts to maintain unsustainably high rates of personal
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The global credit crisis calls for cautious monetary policy. ++ Central banks need to take the risks of inflation seriously and avoid unnecessary interest-rate cuts. ++ The ECB should serve as a model for other central banks - it has ignored calls for interest-rate cuts and instead responded to the credit crunch by “opening wide the discount window and performing pragmatically its role as lender
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If the US continues pressing China to float its currency, Beijing will start selling its dollar reserves, warns Ambrose Evans Pritchard of the Telegraph . Although Chinese officials assert that “China does not want any undesirable phenomenon in the global financial order”, such action could trigger a dollar crash as well as a spike in US bond yields. The combined
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The newest tale of woe among American investment banks is the housing market, according to The Economist. Some analysts on Wall Street predict that the housing bubble is on the verge of collapse, and point to the “subprime mortgage market” as the culprit. These loans, given to potential homeowners with poor credit at little or no money down, provide initial low “teaser” interest rates, which
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