The global economy is slumping: we need a worldwide economic stimulus now

[T_i_B]

http://blogs.telegraph.co.uk/news/danielknowles/100131322/the-global-economy-is-slumping-we-need-a-worldwide-economic-stimulus-now/

I can't help but feel that everyone is missing the point. Yesterday, the IMF, the World Bank the World Trade Organisation and the OECD published a "call to action" for the world economy. Here's what they say:

The world faces significant and urgent challenges that weigh heavily on prospects for future growth and on the cohesion of our societies. But entering 2012, we worry about: decelerating global growth and rising uncertainty; high unemployment, especially youth unemployment, with all its negative economic and social consequences; potential resort to inward-looking protectionist policies.

The organisations are calling on the world's leaders to "manage fiscal consolidation to promote rather than reduce prospects for growth and employment": which is to say they want less austerity and more stimulus, please. They're not the only ones. Standard and Poor's, the credit rating agency, recently reported that reform "based on a pillar of fiscal austerity alone risks becoming self-defeating".

The problem is, fiscal stimulus in one, small country can't do much. A unilateral policy of stimulus would do two things. First, it would risk undermining the faith of investors, who would flee to "safer" assets, pushing up long-term interest rates and worsening the problem. Second, even if investors kept buying British bonds, the higher interest rates and higher demand would force up the value of the pound and lead to a surge of imports, cancelling out much of the growth boosting effect. This could be mitigated if the Bank of England created more money through quantitative easing, but that policy has problems of its own, not least that it risks an un-managed devaluation of the pound and so, again, the loss of faith of investors.

But while a British stimulus, on Ed Balls's lines, would probably not work, a global stimulus would. What Keynes called the paradox of thrift now operates on an international level. For any individual nation, making savings is rational, but for the global economy as a whole, it is deeply destructive. If any one country starts a stimulus, it will suffer the wrath of the markets. But the markets can't punish everyone simultaneously: they need somewhere to park their money. If everyone decides to borrow more, then interest rates worldwide will rise, but no one country will experience crushing rises. Germany, in particular, with a deficit of just 1.5 per cent of GDP, ought to be spending like a lottery winner in Vegas, to counteract the austerity it is enforcing everywhere else in Europe.

[FreakinDJ]

1. USA doen't need stimulus - We need to change the US Corp Tax Code

US Tax Corp Tax Code provides far to many Loopholes that provide financial incentives to outsource middle class jobs. What the World is suffering from is the lack of a Strong American Middle Class

[ZM90]

2. Yeah good luck getting a stimulus in the US with the Republican house oppose to absolutely

everything Obama proposes.

[T_i_B]

3. One of many real world problems with this idea.

It's interesting to note that this is from the UK Daily Telegraph, a right wing newspaper that supports the US Republicans but is advocating something that I would imagine US Republicans would be horrified at for a number of reasons.

[Owlet]

4. He's right that 'everyone is missing the point'

but the point is that the global economy is wallowing in debts, and any stimulus, global or otherwise, which requires yet more borrowing will not make the underlying problem go away. The chicks are finally coming home to roost, and they are Angry Birds to say the least.