For much of the rich world, however, the most important consequences of Europe’s mess will be fiscal. Governments must steer between imposing premature austerity (in a bid to avoid becoming Greece) and allowing their public finances to deteriorate for too long. In some countries with big deficits, the fear of a bond-market rout is forcing rapid action. Britain’s new government spelled out useful initial spending cuts this week. But the emergency budget promised for June 22nd will be trickier: it needs to show resolve on the deficit without sending the country back into recession.
In America, paradoxically, the Greek crisis has, if anything, removed the pressure for deficit reduction, by reducing bond yields. America’s structural budget deficit will soon be bigger than that of any other OECD member, and the country badly needs a plan to deal with it. But for now, lower bond yields and a stronger dollar are the route through which American spending will rise to counter European austerity. Thanks to its population growth and the dollar’s role as a global currency, America has more fiscal room than any other big-deficit country. It has been right to use it.
The world is nervous for good reason. Although the fundamentals are reasonably good, the judgment of politicians is often unreasonably bad. Right now that is what poses the biggest risk to the world economy.
Perhaps. It might also be the corruption in the system, and the unwillingness for governments to clamp down on that corruption.
Absolutely right. It’s time to clamp down on or dissolve Fanny May and Freddy Mac. and put a bunch of congress critters out to pasture.
That is not an encouraging article. Be careful of announcements about US Economic growth. Stories which dig into the detail of that supposed growth find a lot of it has a Government origin about it. True, organic economic growth is a lot less. Restocking of inventories is happening, seasonality is playing a part in the uptick. And some big structural tax changes haven’t hit yet (repeal of the Bush tax cuts, new Obamacare taxes and insurance premium increases).
Nothing is being done about the structural deficit. The only proposal on the table is more taxes to support even more spending. That is not sustainable. Ingrained political corruption is a huge part of that problem. Only the voters can address that one and they better do it come November.
The elephant in the room that no one wants to talk about is that the Federal Government spends too much money because it does too many things, most of which involve things not delegated to it by the Constitution. Cut those things out and you will have a government the nation can afford while letting people keep a larger majority of what they earn that can be plowed back into the private economy to fuel vast economic growth.
John in #1, as long as governments themselves are conscious of their own capacity for corruption, and of the incredible power of the law of unintended consequences in terms of their decisions and their implications.
I do not see much of this at present, alas.