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Posts Tagged ‘austerity’

Nine Reasons Why This Economy Feels So Bad

Posted by Ram Kumar Shrestha on August 8, 2012

The recent slump has been unusually painful, and the feeble recovery has been disappointing. But today’s economy seems even worse than it actually is.
 
Man holding empty wallet

H. ARMSTRONG ROBERTS / RETROFILE / GETTY IMAGES

Recent U.S. economic troubles are often referred to as the Great Recession, implicitly equating them with conditions during the Great Depression. Yet by many measures the economic deterioration of the past few years is not as serious as in some earlier downturns. The drop in GDP from peak to trough for the 2007-09 recession was indeed severe, 4.7% compared with 3.2% for the 1973-75 recession. Still, it doesn’t begin to compare with the 26% decline of the early 1930s, the 18% of the 1937-38 recession or even the 12% of the often-overlooked 1945 slump. And peak unemployment was higher not only during the Great Depression, but also during the recession of the early 1980s.

Moreover, if you look beyond the national averages, several past recessions have been more destructive in certain specific regions. Rust Belt manufacturing was badly battered in the 1970s – indeed, Detroit and the U.S. auto industry have never fully recovered. And the Oil & Gas business, especially in Texas, needed a long time to bounce back from the 1980s. All things considered, the recent recession may have been worse than average, but it was hardly unprecedented – and nowhere near comparable to what happened in the 1930s. So why do today’s economic troubles seem even worse than they are? Here are nine reasons:

The recovery has been hugely disappointing. Compared with today’s feeble gains, the rebounds that followed the deep recessions of 1973-75 and the early 1980s were robust. Within 18 months, real GDP growth touched 9% and remained well above average for several years. By contrast, the current recovery has failed to get much beyond 4% at best and has averaged less than  2.25% over the three years since the official end of the recession. Read the rest of this entry »

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G-8 or G-Zero? Why the West No Longer Sets the Global Agenda

Posted by Ram Kumar Shrestha on May 20, 2012

Mark Wilson / Getty Images

MARK WILSON / GETTY IMAGES
G8 foreign ministers (L-R), Koichiro Gemba of Japan, Guido Westerwelle of Germany, Sergei Lavrov of Russia, British Foreign Secretary William Hague, US Secretary of State Hillary Clinton, Alain Juppe of France, John Baird of Canada, Giulio Terzi Di Sant’Agata of Italy, and Catherine Ashton of the European Union, pose for a group photo on April 11, 2012 in Washington, DC. Secretary Clinton hosted this year’s G8 Foreign Ministers conference at the Blair House

The spectacle of some of the most powerful leaders in the world gathering at Camp David on Friday for the G-8 summit and then for this weekend’s NATO anniversary in Chicago won’t disguise the fact that things seem to be gradually falling apart. These once mighty symbols of international leadership appear almost paralyzed before the tides of economic, financial and political change. The opening of William Butler Yeats’ 1921 poem that found the best devoid of conviction and the worst filled with passionate intensity reads as if crafted as an elegant introduction to an analysis of the global political moment.

(MORE: The G8 Summit at Camp David: This Time, It’s Important)

The G-8 convenes as the euro zone is threatening to unravel, most immediately in the showdown over Germany’s insistence that Greece either swallow the toxic austerity medicine that could kill its economy or see itself banished from the euro zone, potentially triggering global financial losses on the order of $1 trillion. But the forum is unlikely to settle the fate of Greece, much less the underlying tension over policies of austerity to cut spending debt and stimulus policies to revive growth.

When the G-7 was founded in the 1980s its goal was to gather the leaders of the world’s most successful, dynamic economies to plot pathways to further prosperity. Russia was later added to its guest list as a reward for casting off communism rather than as a vote of confidence in its economy. But today, confidence in the group is low. Few seem to believe that the leaders of the U.S., Japan, Germany, France, Britain, Italy and Canada are equipped to tackle the problems facing the world economy. (They effectively admitted their limitations in 2008 when a far wider forum, the Group of 20 — which included the major emerging economies such as China, India, Brazil, Turkey and others — to tackle the global financial meltdown.) Read the rest of this entry »

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The Euro – Going From Bad to Worse

Posted by Ram Kumar Shrestha on April 27, 2012

By Sir Christopher Meyer, Former British Ambassador to the United States and Germany, former Chairman of the Press Complaints Commission

The markets have steadied a bit after their loss of nerve on Monday. But you can’t help feeling that it is a bit like a climber, sliding down a glacier to his inevitable doom, who breaks his fall for a while on a crumbling ledge that soon will give way.

Things in Euroland have taken a bad turn for the worse – and it’s the politics, stupid. It is not just the uncertainty about the second round of French presidential elections on 6 May. François Hollande, the Socialist leader, will probably win, because it will be easier for him than for Nicolas Sarkozy to pick up votes from those whose candidates were knocked out in the first round. But the energetic Sarko should never be underestimated. He is pitching his campaign hard to gain votes from the hard Right supporters of Marine Le Pen. Herein lies the problem for the euro and for Germany.

It almost doesn’t matter who wins the election. The fiscal compact agreed in principle by 25 out of 27 European leaders in January – “a kind of German straitjacket for the fiscally wayward”, to quote Stephen King, group chief economist of HSBC – is Angela Merkel’s pride and joy, her answer to all the eurozone’s difficulties. Typically, like the euro itself, it has been designed to make everyone more like Germany. Hollande has already made it a plank of his campaign to renegotiate the compact. Meanwhile, as Sarkozy moves ever rightwards, striking a strongly nationalist tone (and risking the estrangement of centrist voters), he puts himself increasingly at odds with a compact designed to create greater fiscal union on German terms. If Sarko wins, it is hard to see how Merkozy, never the warmest of unions, can simply pick up where they left off. Read the rest of this entry »

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Why Portugal May Be the Next Greece

Posted by Ram Kumar Shrestha on March 28, 2012

The worst is over for the euro zone, the experts say. But Greece isn’t really fixed and Portugal could become a second big problem before year-end
Getty Images

GETTY IMAGES

When Greece celebrated its Independence Day on Sunday, there were scattered protests over the harsh austerity program aimed at stabilizing the country’s finances. The government reportedly removed low-hanging fruit from bitter-orange trees along the parade route, so it couldn’t be thrown by protesters. But, basically, the most recent bailout appears to be successful. As a result, worries about the European financial crisis have diminished somewhat. Indeed, European Central Bank president Mario Draghi has said that the worst is over for the euro-currency zone.

Such optimism may be premature, however. Not only does Greece remain a long-term financial concern, but in addition Portugal is on track to become a second big problem.

The dangers Greece still poses are clear. Higher taxes and government-spending cuts may reduce new borrowing, but such austerity policies also undermine a country’s ability to pay the interest on its existing debt. Unless accompanied by progrowth policies, austerity can become the financial equivalent of a medieval doctor trying to cure patients by bleeding them. In addition, the bailout plan for Greece consisted of marking down the value of much of the country’s debt held by banks and other private lenders. That means entities such as the European Central Bank now hold most of Greece’s remaining debt. And so, in the event of a default, important international institutions would suffer the greatest damage.

(MORE: Is Germany’s Euro-Crisis Strategy Actually Working?)

The net result has been to postpone the Greek financial crisis for months or even a couple of years, while raising the stakes if things go wrong. That could be seen as a considerable achievement, if you believe Greece is a unique case and that the problem has been successfully contained. The trouble is that other countries — and especially Portugal — seem to be heading down the same path. Here’s why forecasters are worried: Read the rest of this entry »

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