Broken Systems Plus Bad Ideas Equals Lame Recovery – Bloomberg 07-10-13

Salient to Investors:

Clive Crook writes:

  • The global economic recovery is hardly worthy of the name. The IMF has again reduced its forecasts for the world economy.
  • Recessions involving financial crashes are harder to recover from.
  • Two great failures of coordination receive scant economic discussion. Precious little effective international cooperation and, at the national level, governments unable or unwilling to carefully co-manage the different policies that a recession that drops interest rates to zero and requires unusual stimuli.
  • The EU has instead actively militated against recovery, and inflicted severe fiscal contraction on the periphery. The ECB has let the goal of EU-wide low inflation deflect it from providing adequate monetary stimulus to countries where demand has collapsed. A genuine banking union is a sine qua non for the EU, which has made scant progress towards it.
  • Global governments should have given the IMF more resources sooner to better help distressed sovereign borrowers, should have revived the Doha Round of global trade talks and upped their ambitions on trade liberalization. Instead, they let it shrivel.
  • At the national level, keeping fiscal policy, monetary policy and financial regulation in separate silos fails in times like these. For maximum stimulus effect, all 3 must work together.
  • Fears that aggressive QE might cause financial instability when it’s reversed should be taken seriously, even if signs of a risky “reaching for yield” are few right now.

Read the full article at http://www.bloomberg.com/news/2013-07-10/broken-systems-plus-bad-ideas-equals-lame-recovery.html

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