European Central Bank, Under New Chief, Cuts Key Rate. A Failed Global Recovery - Stephen S. Roach. Exit from comment view mode. Click to hide this space NEW HAVEN – The global economy is in the midst of its second growth scare in less than two years. Get used to it. In a post-crisis world, these are the footprints of a failed recovery. The reason is simple.
But a post-crisis recovery is a very different animal. Such weak recoveries, by definition, lack the cushion of V-shaped rebounds. That is the risk today. Indeed, if the IMF’s latest forecast proves correct, global GDP at the end of 2012 will still be about 2.2 percentage points below the level that would have been reached had the world remained on its longer-term 3.7% annual-growth path. This protracted “global output gap” underscores the absence of a cushion in today’s world economy, as well as its heightened sensitivity to shocks. While none of these shocks appears to have been severe enough to have derailed the current global recovery, the combined effect is worrisome, especially in a still-weakened post-crisis world. A Tale of Two Defaults - Daniel Gros. Exit from comment view mode. Click to hide this space BRUSSELS – Once upon a time, there was a country plagued by large deficits, high inflation, and decades of economic stagnation.
When economic problems once again became particularly acute, the country’s leadership embraced a radical approach to achieving price stability. A new currency was introduced and pegged to the US dollar at a one-to-one exchange rate. A new law stipulated that this quasi-monetary union was to last forever. Moreover, the economy was opened, state enterprises were privatized, and the country participated in an important regional free-trade initiative. Initially, the new arrangement worked very well. But, after about 10 years, the success story turned bitter. Moreover, fiscal policy had not been kept under control, resulting in increasing public debt.
The difficulties intensified when risk aversion in international financial markets increased markedly, owing to other emerging-market defaults. The Second Great Contraction - Kenneth Rogoff. Exit from comment view mode. Click to hide this space CAMBRIDGE – Why is everyone still referring to the recent financial crisis as the “Great Recession”? The term, after all, is predicated on a dangerous misdiagnosis of the problems that confront the United States and other countries, leading to bad forecasts and bad policy.
The phrase “Great Recession” creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.
A more accurate, if less reassuring, term for the ongoing crisis is the “Second Great Contraction.” China’s $3.2 Trillion Headache - Yao Yang. Exit from comment view mode. Click to hide this space BEIJING – While the downgrade of United States government debt by Standard & Poor’s shocked global financial markets, China has more reason to worry than most: the bulk of its $3.2 trillion in official foreign reserves – more than 60% – is denominated in dollars, including $1.1 trillion in US Treasury bonds.
So long as the US government does not default, whatever losses China may experience from the downgrade will be small. To be sure, the dollar’s value will fall, imposing a balance-sheet loss on the Peoples’ Bank of China (PBC, the central bank). But a falling dollar would make it cheaper for Chinese consumers and companies to buy American goods. The downgrade could, moreover, force the US Treasury to raise the interest rate on new bonds, in which case China would stand to gain.
That agreement allowed the world to hope that the US economy would embark on a more predictable path to recovery. The Australian Dollar: Up In The Air - beinformed Journal - beinformedjournal. Hedge Funds Seek Big Gains in Greek Crisis Hedge Funds Seek Gains Amid Market Turmoil. Corporate Cash Con.