Phil > there has to be consequences to fiscal mismanagement and debt (2)
The opinion of Nobel Prize laureate Joseph Stiglitz:
bday.co.za
>>>We will all feel the ripples from fiscal mess created by Bush
US can only blame itself for spiralling deficits, but in a globalised economy it will sop up much of savings pool.
Meanwhile, the US trade deficit mounts. The US, the world's richest country, evidently cannot live within its means, borrowing more than $1bn a day.
As the US thrashes around for someone to blame, it was inevitable that it would focus on China, with its large trade surplus, just as the twin fiscal and trade deficits of the Reagan era led to a focus on Japan a couple of decades ago.
However, this is blame-shifting, nothing more. The fiscal and trade deficits of the US are both intimately linked. If a country saves less than it invests, it must borrow the difference from abroad, and foreign borrowing and trade deficits are two sides of the same coin.
Globalisation means that mistakes in one country especially in the world's largest economy have powerful repercussions elsewhere.
Three things are worth noting here. First, the US's deficits are certain to sop up vast amounts of the world's pool of savings. But the world will recover eventually from its current slowdown, and that shortage of savings will become important.
It will mean higher real interest rates, lower investment, and lower growth, all of which will be especially costly for developing countries.
Second, the US's huge trade deficit might be a major source of global instability. Will the world continue to finance this deficit willingly, to put its money into a country with such a demonstrated lack of competence in macroeconomic management (to say nothing of the corporate, banking, and accounting scandals)?
Finally, in searching for others to blame, the US may once again enter an era of protectionism, as it did under Reagan.
Equally worrying both for the US and the world is the path on which it has embarked: deficits as far as the eye can see. The Bush administration's policies bode ill for the US in the long run and hence for the world. <<< |
