Before our political leaders get too fancy remaking capitalism next month at the Bretton Woods II summit in Washington, they should attend to urgent business. Since the closure of Lehman Brothers triggered a global banking panic, political leaders in the US and Europe have successfully thrown a cordon round their banks to prevent financial meltdown. What they have not done yet is to co-ordinate macroÂeconomic policies to stop a steep global downturn. This is the urgent agenda.
A US downturn will not be avoided. US households cannot continue to spend more than their income as they have in recent years, even if the credit crunch eases. Household consumption is bound to fall steeply. The writedowns in US household wealth from the reversals in housing and equities will probably reach $15,000bn (€12,000bn, £9,700bn) and the resulting steep decline in private consumption and investment could reach about one-tenth of that amount.
Some”‰other economies will also suffer home-grown recessions because they too allowed a housing bubble to devÂelop,”‰which”‰has”‰now”‰burst. This appears to be the case in Australia, the UK, Ireland and perhaps Spain. This drop in spending outside the US because of capital losses and reversals in housing may add another $300bn-$500bn to first-round decline in global demand.
Yet even a steep recession in the US and in a few other countries need not throw the world into recession….
It’s wonderful, all the bold, visionary things one can do with other people’s money.
The US has spent more than it has generated (in part by taking over the defense of the rest of the world and permitting our currency to be undercut so as to prop up other nations). Thus we cannot avoid a recession. However the US should now spend even more on other countries (worsening her own depression) in order to ensure that other countries avoid a recession.
We are going to lose the house because we have spent too much both on ourselves and on our next door neighbor. We should therefore lose our car and max our credit cards to make sure that our neighbor doesn’t lose his house.
I have a better idea. Let’s kick the UN out of New York and have them relocate in Geneva. The Swiss can be the new policemen of the world. I understand they are solvent.
I’m with you, Clueless.