Overall, global growth is expected to slow down to four per cent this year and next. But this global number masks some important differences. In the advanced economies, the epicenter of the financial crisis, the recovery is still weak and bumpy with unacceptably high unemployment. It would result in an anemic 1.5pc to two per cent growth in 2011/12. The global economy has entered a dangerous new phase. While the recovery continues, it looks weaker, bumpier, and more uneven; financial stress has risen substantially. The world is suffering from a collective crisis of confidence which is holding back consumption, investment and job creation. This imposes not only economic but also social costs. Uncertainty has been exacerbated by policy indecision and political dysfunction across economies. A key problem is the huge indebtedness of the developed world. Uncertainty hovers over sovereigns, across banks in Europe, and households in the United States. Adverse feedback loops between the real economy and the financial sector are gaining strength. Concerns about public debt sustainability in the euro area have intensified, leading to fears about the health of banks. The story is different in the emerging markets and developing countries, with growth projected in the six to 6.5pc range. The two-speed recovery noted last year is still very much evident. If anything, it is getting starker. While the advanced economies face cold headwinds, the emerging markets and developing countries face too much heat. This is a real bright spot as countries harvest the fruits of sound economic policies and while accommodative policies, especially fiscal stimulus, helped to ease the pain of the crisis, signs of overheating and inflationary pressures are evident in some countries. A number of key risks are visible here. Continued financial market stress could lead to large and abrupt capital outflows as investors flee to safety. Weaker global growth would hurt emerging markets through reduced trade flows and lower commodity prices. A global slowdown could expose underlying vulnerabilities from excessive credit growth; vulnerabilities that typically stay below the surface in good times. Downside risks are substantial, without policy action to halt this vicious circle; the global economy could face a protracted period or low growth and high unemployment. Even worse, a downward spiral of uncertainty and risk aversion, dysfunctional financial markets, unsustainable debt dynamics, and a collapse in global demand could not be overlooked. Resolving the crisis requires two key rebalancing acts; a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus countries. Progress on both fronts has been weak. Private demand has not been strong enough to take the baton from public demand. Domestic demand in key emerging markets has not grown enough, due to structural distortions and limited exchange rate flexibility. Policies have gone halfway toward achieving more domestic and inclusive growth in emerging and developing economies. It is time to finish the job. Policymakers must act now; act boldly and act together. The stakes are high. The first priority is to deal with balance sheets of sovereigns, banks, and households. On sovereigns, fiscal consolidation as a matter of priority is of high demand, but, pushing too fast will harm growth and jobs. Credible measures that deliver and anchor savings in the medium term will help create space for supporting growth and jobs in the short run. Policymakers must also focus squarely on job creation. High unemployment not only depresses demand, but also leads to grave human and social costs. This is especially true when unemployment is long-lasting and concentrated among the young and the unskilled. In the emerging markets, the surplus countries must rely more on domestic demand, especially since domestic-led growth is also more inclusive growth. In the deficit countries, the challenge is to reduce overheating and preserve financial stability. The encouraging recent developments being observed in sub-Saharan Africa make a welcome contrast to the disappointing recent performance of the advanced economies. For sub-Saharan Africa, an output growth of 5.25pc is projected in 2011; this could rise to 5.75pc percent by 2012. Beneath these good overall prospects for sub-Saharan Africa, there is considerable diversity. Most Low-Income Countries (LICs) have been doing well, despite the weak world economy; one third of them are expected to grow by more than six per cent this year. However, poor households have been hit hard by rising food and fuel prices, and famine is devastating the Horn of Africa. Economic developments have been less positive for some middle-income countries. Oil exporters have been enjoying high oil prices, and the non-oil sectors in their economies are projected to grow by 7.25pc this year. Despite the rebound, the crisis did a lot of damage, the strong momentum in reducing poverty and reaching the Millennium Development Goals (MDGs) has been stymied. The resilience of Africa is being tested again by sharp increases in food and fuel prices and the fallouts of the sovereign debt crisis in Europe, spilling over to the European banking system. There are also downside risks to the outlook, including volatility in financial and commodity markets, as well as signs that inflation may be on the rise again. Looking ahead, the policy challenge in Africa will become trickier because of what is happening in advanced economies. If growth continues to falter in the North, the South will eventually be adversely affected. This could happen through the same transmission channels as in the previous crisis; lower trade, lower foreign investment, lower remittances, and lower aid flows. In the event of an increased impact from the global slowdown, and subject to financing constraints, policies should focus on maintaining planned priority spending. However, some slower growing countries have yet to see output and employment return to potential levels. Policies should remain supportive of output progression; and even more so if global growth wanes. Most low-income countries are currently growing at an increased pace, but their policy reaction has been too slow to shed the accommodative approach adopted during the previous crisis. As a result, inflation is now rising in a number of them. These countries should tighten monetary policy and focus on medium-term objectives in setting fiscal policy. With the projected output growth and rising inflation, it is time to rebuild the buffers that served the region so well during the previous crisis. Furthermore, since many African countries need to invest in infrastructure and strengthen social safety nets, domestic revenue mobilization must be a priority. Oil exporting countries are in a different league. Better terms of trade are providing an opportunity to build up reserves depleted in the aftermath of the previous crisis to cushion price volatility and global slowdown, while at the same time pursuing development goals. It is now part of conventional wisdom that cooperation saved the world from calamity during the last crisis. Today, collaboration is more important than ever, given the grave and urgent challenges, as well as the complexity and interdependence of the global economy. Everybody must have a voice at that table, including Africa.
What about getting the Globe Back to Work, here is President Clinton's new book
| Breaking from Newsmax.com
Bill Clinton New Book Gets It Right
It is unusual for a former president of the United States to write a book offering advice to both Congress and the current president on how to fix a problem the nation faces. But Bill Clinton has a habit of ignoring old and meaningless rules. As we witness gridlock in Washington, the former president’s new best-seller — “Back to Work: Why We Need Smart Government for a Strong Economy” — is a most welcome addition to the national debate on the fiscal crisis. Editor's Notes:
"Back to Work."Clinton’s book offers a blueprint from which President Barack Obama and congressional Republicans and Democrats alike could use to get the country working again, even before the 2012 election. Some Republicans might recoil at the idea of taking advice from a popular Democratic president. In hindsight, many of his most partisan critics admit that Clinton's stewardship over the economy was laudable, offering pro-growth and pro-business policies. As he details in “Back to Work,” Clinton’s tenure witnessed an economic boom as he controlled the growth of federal spending, slashed capital gains taxes (other taxes were modestly increased), and reduced the federal payroll. By the time he left office, Clinton had not only balanced the budget, but also left surpluses. When he took office, the national debt had jumped to 49 percent of GDP. When he left, the debt had been reduced to just 39 percent of GDP. Today that same debt is around 70 percent of GDP and growing — a number that ominously pulsates the word “danger" in red. President Clinton succeeded because he was adept at using the system the Founding Fathers had created, with compromise being a core principle. He worked with then-House Speaker Newt Gingrich and congressional Republicans to forge programs that made the country stronger. For example, he signed into law the most sweeping welfare reform law in history. There are significant lessons here for President Obama. In “Back to Work,” Clinton criticizes Republicans for not allowing taxes to be consistent with their spending programs. It’s a fair point, though I still believe we have a spending problem and not a revenue problem. He says that President George W. Bush spent furiously while cutting taxes, with little complaint from Republicans. A rather interesting chart on page 38 details that Obama’s current spending and projected spending have him adding $1.44 trillion in new spending over eight years. The chart shows that President Bush’s budgets actually increased spending by an incredible $8 trillion over two terms. For sure, it’s hard to affix party labels to out-of-control government spending. Spending was not the immediate cause of the current economic crisis, Clinton argues. Instead the meltdown was precipitated because banks were “overleveraged with too many risky investments, especially in subprime mortgages and the securities and derivatives that were spun out of them, and too little cash to cover the risks.” Further, he suggests that “an anti-government obsession” caused a lax regulatory environment that allowed banks and financial institutions to engage in such risky practices. On this point I would disagree. Like most conservatives, I believe in sensible government regulation, especially in the banking industry. I believe the real culprit was special interests in Washington — not only Fannie Mae and Freddie Mac, who spent millions lobbying Congress, but the whole financial industry, which has succeeded beyond imagination in setting lax constraints on lending practices. Take for example, the no-money-down mortgages, the zero-interest mortgages, and the widely used adjustable rate mortgages — all of which I believe were principal triggers for the 2008 meltdown as these mortgages reset to higher rates. Such mortgage schemes are gimmicks that encourage homebuyers to purchase above their means. Such is the influence of the financial industry today. Many of these mortgage instruments are still legal, though they should have been banned long ago. Clinton continually points out that he is “not an ideologue but prefers to focus on what work,” especially preferring programs with empirical evidence of success. One of the reasons I embrace a low tax, less government approach is that I believe it does work and the empirical evidence is there to prove it. For decades, all over the world, it has been consistently demonstrated that those countries that have low tax rates with less government as a percent of GDP, will have higher economic growth rates. And it is a truism that countries that have high tax rates and high regulatory environments have lower growth rates. There are some exceptions, usually a Scandinavian country or an emerging nation like Brazil, which heavily benefit from commodity sales and can still raise taxes with impunity. Clinton clearly grasps the idea that government is not the solution. His book emphasizes what he calls “smart government” which, in his view, means that government works with the private sector to get things done. The Clinton Foundation, which President Clinton founded, helps the neediest in the world in over 180 countries. It has done amazing work because the foundation leverages government to allow the private sector to do what it does best. Clinton would like to mimic that success with the U.S. government. He says, for example, that U.S. healthcare costs have soared, now amounting to over 17 percent of GDP. No other country in the world spends on healthcare like we do. He notes that if government worked with the private sector and we spent closer to 12 percent on GDP like France does, we could save at least $870 billion overnight. Clinton’s smart government program is outlined in 46 actionable items. Republicans and Democrats would agree on over 90 percent of them. He believes that the way to fix the U.S. economy is to first fix the current mortgage crisis, which continues to drag the overall economy. He calls for such things as renegotiating mortgage principal with people struggling to pay their mortgage, lowering interest rates, refinancing, and other incentives to get home ownership back on track. He’s right on this score. But there are other ideas that he likes including bringing corporate cash offshore back into the U.S. with certain tax benefits and incentives to create new jobs. He wants to speed up the process by which infrastructure programs are implemented. And he has actionable ways that we can increase exports and create consumer demand here in the United States. Interestingly enough, 15 of his 46 points deal with reducing the cost of energy while improving the environment. This is a laudable goal and very crucial to economic recovery. Currently oil is $100 per barrel. Just seven years ago, it was around $25 per barrel. And during Clinton’s presidency it was as low as $17 a barrel. The high cost of oil is wreaking havoc across almost every economic sector. If oil prices were to be cut, it would be like a global tax cut, freeing up consumer cash and exploding economies around the world. Clinton has excellent ideas to reduce oil consumption. As we do so, demand and prices will fall. His ideas include government efforts to support biofuels, geothermal energy projects, hybrid cars, and improving our national electric grid system so we can use wind and solar power more efficiently. Former presidents usually spend their time on corporate boards, the speaking circuit and, of course, the golf course. Clinton has chosen a different path and decided to remain part of the national conversation. His book is an important contribution and well worth reading, even for the current occupant of 1600 Pennsylvania Ave. Additional Links: |
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