Governments Advised to Cut Public Spending or Raise Taxes to Curb Inflation

THE GUARDIAN: Bank of International Settlements warns that economies, such as in the UK, need policies to cool price growth

Governments must raise taxes or cut public spending after central banks kept interest rates too low for too long in the face of higher inflation, according to the Bank of International Settlements.

Closing the gap between government income and expenditure would “calm inflation”, according to the annual report from the Basel-based organisation, which advises 63 central banks covering 95% of global economic output.

Governments that embarked on spending cuts or tax rises would reduce business and consumer demand and be a critical part of the “last leg” in the battle to tame inflation, which despite an intense run of interest rate rises by central banks around the world is far from over, the institution warned in a press release alongside the annual report. This final drive would also be the “hardest” however, in the fight to cool the sharp rate of price growth.

Amid concerns that the UK economy is already heading into a recession after a succession of sharp interest rate rises, the BIS took a tough line, saying higher taxes and lower spending could “contain financial instability risks in several ways”. » | Anna Isaac | Sunday, June 25, 2023

The Guardian View on the World Economy: Another Bleak Era Beckons

THE GUARDIAN – EDITORIAL: The 2010s were a wasted decade for economies and the environment. The 20s have all the makings of a second

Remember the roaring 20s? Even as Covid gripped the world, optimists piped up that the economy would come roaring out of the pandemic, bolstering incomes and kickstarting an almighty boom. Harking back to the Spanish flu pandemic of a century earlier, they saw a decade of glorious growth ahead.

Well, they were wrong. Ahead lies not roaring but snoring; no boom, but ever-deepening gloom. That is the message from the International Monetary Fund and the World Bank, which are holding their spring meetings in Washington DC this week. In its economic outlook, the IMF not only outlines what a mediocre few years lie ahead, it is also worried that things could get even worse. As for the World Bank, it has published a 564-page book whose chief preoccupation is in its title: Falling Long-term Growth Prospects. It warns of a “lost decade in the making”, and projects that the meagre growth of the 2010s will “extend into the remainder of the current decade”. We may be less than a third of the way into the 20s but, as far as the serried ranks of the top economists in Washington are concerned, it is already game over. » | Editorial | Wednesday, April 12, 2023

A New Kind of Global Recession: Why This Time Is Different | Business Beyond

Nov 18, 2022 | The global economy is at an inflection point. The IMF projects that a third of the world economy will be in recession next year. War in Europe, a slowdown in China and soaring inflation have contributed to widespread pessimism around a growing, multifaceted economic crisis. In this episode, we will untangle the threads of the looming global recession. By comparing the current state of the global economy to the 2008 financial crisis, we will be exploring what makes this downturn different.

What’s at Stake for the Global Economy if Russia Invades Ukraine

THE NEW YORK TIMES: Countries that depend on the region’s rich supply of energy, wheat, nickel and other staples could feel the pain of price spikes.

The seaport in Odessa, Ukraine. A Russian attack on Ukraine could contribute to far-reaching jumps in the price of food and energy. | Brendan Hoffman for The New York Times
After getting battered by the pandemic, supply chain chokeholds and leaps in prices, the global economy is poised to be sent on yet another unpredictable course by an armed clash on Europe’s border.

The lead-up to a potential Russian invasion of Ukraine has already taken a toll. The promise of punishing sanctions in return by President Biden and the potential for Russian retaliation has pushed down stock returns and driven up gas prices.

An outright attack by Russian troops could cause dizzying spikes in energy and food prices, fuel inflation fears and spook investors, a combination that threatens investment and growth in economies around the world.

However harsh the effects, the immediate impact will be nowhere near as devastating as the sudden economic shutdowns first caused by the coronavirus in 2020. Russia is a transcontinental behemoth with 146 million people and a huge nuclear arsenal, as well as a key supplier of the oil, gas and raw materials that keep the world’s factories running. But unlike China, which is a manufacturing powerhouse and intimately woven into intricate supply chains, Russia is a minor player in the global economy. » | Patricia Cohen and Jack Ewing | Monday, February 21, 2022

A Fumbled Global Response to the Virus in a Leadership Void

THE NEW YORK TIMES: While world leaders are at last speaking out about the gravity of the pandemic, their voices are less a choir than a cacophony, with the United States absent from its traditional conductor role.

LONDON — In Frankfurt, the president of the European Central Bank warned that the coronavirus could trigger an economic crash as dire as that of 2008. In Berlin, the German chancellor warned the virus could infect two-thirds of her country’s population. In London, the British prime minister rolled out a nearly $40 billion rescue package to cushion his economy from the shock.

As the toll of those afflicted by the virus continued to soar and financial markets from Tokyo to New York continued to swoon, world leaders are finally starting to find their voices about the gravity of what is now officially a pandemic.

Yet it remains less a choir than a cacophony — a dissonant babble of politicians all struggling, in their own way, to cope with the manifold challenges posed by the virus, from its crushing burden on hospitals and health care workers to its economic devastation and rising death toll.

The choir also lacks a conductor, a role played through most of the post-World War II era by the United States.

President Trump has failed to work with other leaders to fashion a common response, preferring to promote his border wall over the scientific advice of his own medical experts. » | Mark Landler | Wednesday, March 11, 2020, updated Thursday, March 12, 2020

Saudi Prince Warns Regional War with Iran Could Lead to 'Total Collapse of Global Economy'

THE TELEGRAPH: Awar with Iran would lead to “a total collapse of the global economy”, Saudi crown prince Mohammed bin Salman has said, as he called for a political solution and endorsed talks between Donald Trump and Iranian leaders.

Speaking two weeks after Iran allegedly bombed major Saudi oil facilities, and as new footage of the attack surfaced, the kingdom’s de-facto ruler said that a full-scale conflict in the Persian Gulf would cause oil prices to jump to “unimaginably high numbers that we haven't seen in our lifetimes”.

“The political and peaceful solution is much better than the military one,” Crown Prince Mohammed told CBS News. » | Raf Sanchez, Middle East correspondent | Monday, September 30, 2019

Mervyn King on Brexit, Scotland and the Global Economy - BBC Newsnight

Mervyn King on Brexit, Scotland and the global economy. This is the full, unedited version of an interview with Evan Davis on Newsnight.

'There Will Be Riots on Streets of America': George Soros Predicts Class War in U.S. as Euro Triggers Collapse of Global Economy

MAIL ONLINE: Billionaire New York investor warns of impending economic meltdown / Backs euro and buys Italian bonds from Jon Corzine's failed MF Global / Warns it's 'difficult to know right decisions to make' after boom years / Supports Occupy Wall Street, Democrats and Obama re-election efforts

Billionaire investor George Soros has warned the global economic system could collapse and riots on the streets of America are on the way.

The 81-year-old said he’d rather survive than stay rich as the world faces an ‘evil’ period and Europe fights a ‘descent into chaos and conflict’.

He has backed the euro, bought $2billion in European bonds and insisted the economic climate is similar to the 1930s Great Depression.

‘The euro must survive because the alternative - a breakup - would cause a meltdown that Europe, the world, can’t afford,’ he told Newsweek.

‘The situation is about as serious and difficult as I’ve experienced in my career. We are facing now a general retrenchment in the developed world.’

His warnings came as U.S. stocks dipped on Tuesday, with talks to resolve Greece's debt crisis faltering and threatening a five-day winning streak. » | Mark Duell | Tuesday, January 24, 2012

Saudis and Oil Key to Global Economy
THE SYDNEY MORNING HERALD: The fate of the world's economy and financial markets lies with Saudi Arabia's political stability and the price of oil over the next three months.

That's according to independent economist David Hale, who says an escalation of friction between oil producers Saudi Arabia and Bahrain could tip the world back into recession.

Mr Hale's opinion is backed by Magellan Financial Group's chief executive Hamish Douglass, who says a major conflict involving major oil producers could have the oil price skyrocket by $US200 a barrel.

Saudi Arabia's intervention in Bahrain two weeks ago to quell a civil uprising polarised, rather than stabilised, the situation that had since quietened down, said Mr Hale, who is global economic adviser to the Commonwealth Bank of Australia.

"I think it was probably too pre-emptive and probably destructive," he told AAP in an interview in Melbourne.

"I think the critical issue of a tipping point is Saudi Arabia and political stability.

"If that's jeopardised, that could send the oil price up (by) $US50 a barrel, $US100 a barrel. That would tip us into a new global recession." » | Alison Bell | AAP | Tuesday, March 29, 2011

IMF Raises Spectre of Civil Wars as Global Inequalities Worsen
THE DAILY TELEGRAPH: The International Monetary Fund (IMF) has warned that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries.

Dominique Strauss-Kahn, the IMF's chief, said the economic rebound across the world is built on unstable foundations, with many rich nations still strapped in job slumps while the rising powers of China, India and Brazil already facing the threat of overheating. "It is not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis," he said.

"Global unemployment remains at record highs, with widening income inequality adding to social strains," he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. "We could see rising social and political instability within nations – even war," he said.

The IMF has published a paper entitled Inequality, Leverage and Crisis arguing that the extreme gap between rich and poor – with echoes of the US in the late 1920s – was an underlying cause of the Great Recession from 2008-2009.

The paper, by the Fund's modelling unit, warned of "disastrous consequences" for the world economy unless workers regain their "bargaining power" against rentiers. It suggests radical changes to the tax system and debt relief for workers. >>> Ambrose Evans-Pritchard | Tuesday, February 01, 2011

This blog has been warning of the possibility of civil war for several years. It has also been warning of a return to socialism because of the deep inequalities that exist today. The future does not look bright; in fact, it looks bleak indeed. – © Mark

Obama’s Trade Strategy Runs Into Stiff Resistance
President Obama and Chancellor Angela Merkel of Germany talked, and disagreed, at the Group of 20 meeting on Thursday. Photograph: The New York Times
THE NEW YORK TIMES: SEOUL, South Korea — President Obama’s hopes of emerging from his Asia trip with the twin victories of a free trade agreement with South Korea and a unified approach to spurring economic growth around the world ran into resistance on all fronts on Thursday, putting Mr. Obama at odds with his key allies and largest trading partners.

The most concrete trophy expected to emerge from the trip eluded his grasp: a long-delayed free trade agreement with South Korea, first negotiated by the Bush administration and then reopened by Mr. Obama, to have greater protections for American workers.

And as officials frenetically tried to paper over differences among the Group of 20 members with a vaguely worded communiqué to be issued Friday, there was no way to avoid discussion of the fundamental differences of economic strategy. After five largely harmonious meetings in the past two years to deal with the most severe downturn since the Depression, major disputes broke out between Washington and China, Britain, Germany and Brazil.

Each rejected core elements of Mr. Obama’s strategy of stimulating growth before focusing on deficit reduction. Several major nations continued to accuse the Federal Reserve of deliberately devaluing the dollar last week in an effort to put the costs of America’s competitive troubles on trading partners, rather than taking politically tough measures to rein in spending at home.

The result was that Mr. Obama repeatedly found himself on the defensive. He and the South Korean president, Lee Myung-bak, had vowed to complete the trade pact by the time they met here; while Mr. Obama insisted that it would be resolved “in a matter of weeks,” without the pressure of a summit meeting it was unclear how the hurdles on nontariff barriers to American cars and beef would be resolved. >>> Sewell Chan, Sheryl Gay Stolberg and David E. Sanger | Thursday, November 11, 2010

THE NEW YORK TIMES: Obama Ends G-20 Summit With Criticism of China >>> Sewell Chan | Friday, November 12, 2010

A Lesson from China in Where Power Lies
THE TELEGRAPH: China believes its economic success reflects its superior culture.

The leaders of the G20 group of rich and developing nations met in Seoul this week for what might reasonably be described as their first post-crisis summit. But it also had the feeling of the first post-Western summit. China, the world’s second richest nation and its rising power, believes that the financial crisis was actually a “North Atlantic crisis”. Now that the worst of it is over, Beijing sees little reason to swallow the medicine for someone else’s sickness. The summit therefore broke up – none too amicably – without really addressing the trade imbalances that were one of the root causes of the crisis, or America’s worry that Beijing is gaining an unfair advantage by artificially keeping its currency weak. Instead, China flexed its muscles and got what it wanted: a watered-down statement that will not force it to change course. If President Obama hoped that the G20 would burnish his image as a world statesman after the disaster of the midterm elections, those hopes were disappointed.

It is inescapable that we are witnessing a historic shift of economic power from West to East. David Cameron has certainly taken this on board, judging by the caution with which he and his Cabinet members treated China during their visit earlier this week. The Prime Minister approached the subject of human rights far more obliquely than he did as leader of the Opposition. Whether this was wise judgment or a failure of nerve is difficult to say. Although China treats dissidents with gross inhumanity, the more it is lectured on the subject, the more intransigent it becomes. In a sense, that is convenient for Mr Cameron: if protesting about repression makes the situation worse, then Britain can concentrate on trade with a fairly clear conscience. Read on and comment >>> Telegraph View | Friday, November 12, 2010

100 Years After
Photo of J P Morgan courtesy of the BBC
BBC: Almost exactly 100 years ago at 4.45 in the morning of a November day on the corner of Madison and 35th Street in New York a group of some 50 or so exhausted men stumbled out into the street.

Some had not slept for days.

Behind them, on the other side of the monumental brass doors that closed behind them, they left a piece of paper which pledged them collectively to a loan of some $25m - about $10bn (£5bn) in today's money.

Beside it stood a large gentleman with a walrus moustache, who had forced them into the deal which ended a two-week financial panic that had come close to destroying New York's financial system. That man was J Pierpont Morgan.

From 1903 to 1906 the global economy had boomed and the Dow Jones had doubled.

But the global supply of gold to which all hard currency was pegged had not kept pace, and hard cash was increasingly scarce.

A hundred years later our credit squeeze had its genesis in the infamous sub-prime mortgage market of the US. 100 years after the 1907 credit crunch (more) By Jamie Robertson

Financial crises: Lessons from history By Steve Schifferes

Mark Alexander