{"id":2064,"date":"2010-06-28T03:50:26","date_gmt":"2010-06-28T10:50:26","guid":{"rendered":"http:\/\/www.politicsplus.org\/blog\/?p=2064"},"modified":"2010-06-28T03:50:26","modified_gmt":"2010-06-28T10:50:26","slug":"g-20-screws-the-pooch","status":"publish","type":"post","link":"https:\/\/www.politicsplus.org\/blog\/2010\/06\/28\/g-20-screws-the-pooch\/","title":{"rendered":"G-20 Screws the Pooch"},"content":{"rendered":"

The outcome of the the G-20 conference is a giant step in the wrong direction.<\/font><\/p>\n

\n

\"28summit\"<\/a> Leaders of the world\u2019s biggest economies agreed Sunday on a timetable for cutting deficits and halting the growth of their debt, but also acknowledged the need to move carefully so that reductions in spending did not set back the fragile global recovery. <\/p>\n

The action at the Group of 20 summit meeting here signaled the determination of many of the wealthiest countries, after enacting spending programs to counter the worldwide financial crisis, to now emphasize debt reduction<\/strong>. And it underscored the conviction of European nations in particular that deficits represented the biggest threat to their economic stability<\/strong>. <\/p>\n

President Obama and Treasury Secretary Timothy F. Geithner had consistently advocated a measured approach to debt reduction that would not stymie growth and lead to a double-dip recession. <\/p>\n

The United States, however, joined other countries at the summit meeting, which was met by protests and several hundred arrests, by endorsing a goal of cutting government deficits in half by 2013 and stabilizing the ratio of public debt to gross domestic product by 2016<\/strong>. Canada\u2019s prime minister, Stephen Harper, had proposed the targets, backed by Germany and Britain. <\/p>\n

To assuage objections from the United States, Japan, India and some other countries, the timetable was couched as an expectation, rather than a firm deadline. The G-20 joint statement explicitly stated that Japan, which is heavily dependent on domestic borrowing, was not expected to meet the targets. <\/p>\n

The divisions were in contrast to the unity that characterized the previous three G-20 leaders\u2019 summits, when the urgency of a potential global collapse produced solidarity and a unified economic approach. Although Mr. Obama insisted emphatically that there was \u201cviolent agreement\u201d on the need to reduce debt over time, the final communiqu\u00e9 included a delicately worded call for deficit reduction \u201ctailored to national circumstances.\u201d<\/strong> In essence, the leaders were blessing their decision to go their own ways. <\/p>\n

The joint statement acknowledged both sides of the debate. \u201cThere is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery,\u201d the statement said. \u201cThere is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth.\u201d <\/p>\n

In a news conference at the conclusion of the summit meeting, Mr. Obama referred only indirectly to the disagreement with Europe, saying, \u201cWe must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs today.\u201d <\/p>\n

His concern about stimulus was echoed by some economists who viewed the pledge on deficits as imperiling the prospects for growth<\/strong>. <\/p>\n

\u201cChina\u2019s growth, specifically, is not seen as sustainable at current rates,\u201d Ronald A. Kurtz, professor of global economics and management at the Massachusetts Institute of Technology, said in an e-mail message. \u201cThe G-20 declaration therefore amounts to saying \u2018assume a miracle\u2019 for global growth.\u201d<\/font><\/strong> He said Europe\u2019s fiscal austerity plans would also slow growth. <\/p>\n

But Dominique Strauss-Kahn, head of the International Monetary Fund, said he thought the risks of a new downturn were minimal. <\/p>\n

\u201cWe don\u2019t forecast any double dip,\u201d he said. \u201cDouble dip was not discussed at the meeting.\u201d <\/p>\n

It is the first time the G-20 has set dates for deficit reduction<\/strong>, but the timetable, which is not binding, will probably not require new policy actions. Most of the governments, including the United States, have already put forward budget proposals in line with the targets. <\/p>\n

The leaders also discussed banking regulations, but could not agree on a proposal for a global bank tax, supported by the United States, Britain and the European Union, but opposed by Canada and Australia. <\/p>\n

And while the G-20 reaffirmed a deadline \u2014 their next meeting, in November in Seoul, South Korea \u2014 for agreeing on new capital standards for banks, they signaled that several countries might not implement the standards by 2012, as initially planned. <\/p>\n

\u201cWhile the illusion of progress is good, I don\u2019t see real action to alter the imbalances that brought us to this crisis,\u201d said Raghuram G. Rajan, a former chief economist at the International Monetary Fund who is now a professor in the Booth School of Business at the University of Chicago. <\/p>\n

The United States, he said, continues to run large trade deficits financed by Germany, China and Japan. \u201cThe U.S. has been the world\u2019s consumer of first resort<\/strong>,\u201d he added, \u201cand because it has been unable to persuade other countries to spend more or to reform quickly, it is likely to take up that position once again<\/strong>.\u201d… [emphasis added<\/em>]<\/p>\n<\/blockquote>\n

Inserted from <NY Times<\/a>><\/p>\n

The only saving grace of this agreement is that it is non binding, but even if the US government spends to stimulate the economy and reforms our finances, failure of the rest of the world to do so mitigates those efforts.  While I agree that, at some point austerity is in order, now is not the time, making the efforts to impose it by Republicans and DINOs here an even greater threat, as Paul Krugman confirms.<\/font><\/p>\n

\n

\"28krugman\"<\/a> Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as \u201cdepressions\u201d at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31. <\/p>\n

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline \u2014 on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses. <\/p>\n

We are now, I fear, in the early stages of a third depression<\/strong>. It will probably look more like the Long Depression than the much more severe Great Depression<\/strong>. But the cost \u2014 to the world economy and, above all, to the millions of lives blighted by the absence of jobs \u2014 will nonetheless be immense. <\/p>\n

And this third depression will be primarily a failure of policy. Around the world \u2014 most recently at last weekend\u2019s deeply discouraging G-20 meeting \u2014 governments are obsessing about inflation when the real threat is deflation<\/strong>, preaching the need for belt-tightening when the real problem is inadequate spending<\/strong>. <\/p>\n

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today\u2019s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer. <\/p>\n

But future historians will tell us that this wasn\u2019t the end of the third depression, just as the business upturn that began in 1933 wasn\u2019t the end of the Great Depression. After all, unemployment \u2014 especially long-term unemployment \u2014 remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps<\/strong>. <\/p>\n

In the face of this grim picture, you might have expected policy makers to realize that they haven\u2019t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy. <\/p>\n

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover<\/strong>, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn\u2019t doing much better. The Fed seems aware of the deflationary risks \u2014 but what it proposes to do about these risks is, well, nothing<\/strong>. The Obama administration understands the dangers of premature fiscal austerity \u2014 but because Republicans and conservative Democrats in Congress won\u2019t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels<\/font><\/strong>. <\/p>\n

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it\u2019s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners\u2019 medicine. <\/p>\n

It\u2019s almost as if the financial markets understand what policy makers seemingly don\u2019t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating<\/strong>\u2026 [emphasis added<\/em>]<\/p>\n<\/blockquote>\n

Inserted from <NY Times<\/a>><\/p>\n

As much as I support our President, Obama is wrong to follow the advice of the three stooges of Greenspan\u2019s economic policies that caused this mess.  Geithner, Bernanke and Summers claim to support stimulus while they are implementing austerity.  They must be replaced.<\/font><\/p>\n","protected":false},"excerpt":{"rendered":"

The outcome of the the G-20 conference is a giant step in the wrong direction. Leaders of the world\u2019s biggest economies agreed Sunday on a timetable for cutting deficits and halting the growth of their debt, but also acknowledged the need to move carefully so that reductions in spending did not set back the fragile […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-2064","post","type-post","status-publish","format-standard","hentry","category-politics","category-5-id","post-seq-1","post-parity-odd","meta-position-corners","fix"],"_links":{"self":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/posts\/2064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/comments?post=2064"}],"version-history":[{"count":0,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/posts\/2064\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/media?parent=2064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/categories?post=2064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/tags?post=2064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}