Preventing a global downturn is too big a job to be left just to American policymakers
IT IS not hard to worry about the world economy. America is either in, or perilously close to, recession, and other rich economies are weakening as the credit crunch tightens. In its new forecast, the International Monetary Fund expects global growth to slow from 4.9% last year to 4.1%: rich countries will manage only 1.8%. But that could prove optimistic. Since this slowdown came from a financial bust, the outlook is particularly uncertain. Nobody knows what financial calamities lurk under the surface or by how much credit will shrink. But one thing is clear. By adopting very different stances to the threat, policymakers are not helping to assuage the uncertainty.
In America politicians and central bankers are focusing on policy stimulus. The Federal Reserve has cut short-term interest rates by 1.25 percentage points in recent weeks, to 3%. Financial markets expect another half-point cut at (or before) the Fed's next meeting on March 18th. This week George Bush signed into law a package of tax rebates and temporary investment incentives worth $152 billion, or just over 1% of GDP.
One reason for this frenetic activity is undoubtedly politics. The prospect of elections in November explains why a fiscal-stimulus plan was agreed upon in record time. But there are two better reasons. There is, simply, the short-term need to respond to the downturn: employment is falling, consumer spending flagging and credit conditions tightening. But there is another rationale: both the Fed and the Treasury believe that by giving a stimulus now, they will minimise the odds of a nasty financial crisis and deep recession. This is their insurance policy.
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The article reviews the fiscal/insurance policies of not only America but also Britian, Mexico, Russia, Canada, etc. Is it up to these countries, especially America, to panic and adjust when the rest of the world is faltering economically? No. The article says other countries should adopt a fiscal policy like that of America's - not perfect but fitting - plan to boost their independent economies. The trend of recession is not just barely visible only in America but of other countries who have produced entirely below their potential. The author of this article declares that America (the watchdog of the world) has found his collar too tight with struggling to lift foreign markets as well as its own.
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