International Monetary Fund chief Christine Lagarde on Wednesday warned the world risked plunging into a “downward spiral” of financial instability and urged Asian economies to be on their guard.
Lagarde said Asia was not immune to problems currently sweeping the eurozone, as she began a two-day visit to China likely to focus on the deepening debt crisis in Europe.“If we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability,” she said at the International Finance Forum in Beijing.Read the rest at Raw Story
IMF chief warns world economy risks ‘downward spiral’
by Agence France-Presse
"Downward spiral" means debt-deflationary depression.
Lagarde is in China looking for bail-out funds.
4 comments:
Are MMTers 'agostic' regarding the use of a currency peg to create export driven economic growth? I would argue that it is somewhat of a good thing that allows an economy to quickly align itself using external demand factors, and to build up foreign reserves that can be used to stabilize prices in the future, once the economy moves towards domestic consumption driven growth.
Tom,
It's like they are literally going over there and saying; "Can we borrow our liabilities back from you, please" ... crazy!
@ Shaun
IN the context of an asymmetric global economy, pegs can be useful in reducing the asymmetry if properly understood and employed.
For example, in the case of developing countries like China and developed countries like the US, a currency peg acts as handicap. The developing country gets to increase its exports due to the exchange advantage and the developed country enjoys an advantage in real terms of trade.
However, the developing country must the use the advantage to develop its domestic markets as quickly as possible, and the developed country must use fiscal policy to offset the demand leakage resulting from a CAD. Otherwise, the result is lop-sided trade and increasing political pressure, as the developing country takes advantage of the handicap to build its export sector without building its domestic economy, while the developed country leaks jobs, resulting in political instability.
So for a while, the developed country gets advantageous real terms of trade and the developing country gets capital and markets to develop more quickly. But this is not meant to be a permanent situation, and both developed and developing countries have to do their part in moving beyond it as quickly as practicable.
If handled well, the world also benefits politically as nations become more interdependent, reducing the chance of armed conflict. However, if the process becomes lop-sided, then conflicts arise.
Tom as always, thanks for your thoughtful response.
:)
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