The new statism from fiscal stimulus will be the major theme of 2009 and there seems little to suggest that thee will be much of discussion on this very relevant topic. The global economies need significant help. This help will not be coming from risk taking by banks or other private means, so governments will be needed to provide counter-cyclical spending. Yet, the form of this spending has not been the subject to much discussion. Some types of government pending will not be structural changes but rather temporary substitutes for private activity. Other actions will be more permanent. Temporary actions are messier because the immediate link between action and spending is unclear. Direct control will be easier to monitor but will have a permanent feel.
Right before Christmas we got the bail-out package for the auto industry; however, there is no end game for this process. This is an extension of packages that have begun in other countries. Is there a point where the auto industry is allowed to go bankrupt? This has the feel of a something that could last for years. We have the Fed also engaged in active lending arrangements to substitute for private behavior. How long is this supposed to last? No one knows. We have had the nationalization of some British banks. Again, it is unclear what is the end game.
Japan has announced a record budget to stimulate the economy as the latest economic data shows the economy seeing a further nosedive. This my be similar to the type of stimulus that was conducted during the 1990's.
State actions are occurring in China which will have an impact on relations with the US. If there is a bail-out of domestic firms which export to the US, will this be considered unfair trade? Within the private sector, many are wondering whether the government is implementing an approach known as guo jin min tui or “the state advances as the private sector recedes”.
From
http://www.ft.com/cms/s/0/3c301096-d37b-11dd-989e-000077b07658.html?nclick_check=1
The Chinese economy is trying to maintain a growth rate of over 8% which is needed to minimize the potential labor unrest issues. It is hard to argue with a move back to statism if the US is not doing the same.
Moscow, which has pledged $200bn to mitigate the effects of the economic downturn, late on Thursday published a list of 295 strategic enterprises entitled to preferential government support.
From http://www.ft.com/cms/s/0/fb228bfa-d385-11dd-989e-000077b07658.html
Moscow has seen significant deterioration in their exchange rate with the fall in oil prices. Central bank reserves have been used to maintain the currency peg but reserve outflow is significant. There will be increasing state control of trade, domestic industries, finance and commodities which enhance the power of a centralized government.
The list can go on, but you get the point. This movement will mean more conflict on trade between countries, less failure of poor companies, and a strong appetite for taxes and debt. Yes, it is needed today but what will be the long-term costs.
Right before Christmas we got the bail-out package for the auto industry; however, there is no end game for this process. This is an extension of packages that have begun in other countries. Is there a point where the auto industry is allowed to go bankrupt? This has the feel of a something that could last for years. We have the Fed also engaged in active lending arrangements to substitute for private behavior. How long is this supposed to last? No one knows. We have had the nationalization of some British banks. Again, it is unclear what is the end game.
Japan has announced a record budget to stimulate the economy as the latest economic data shows the economy seeing a further nosedive. This my be similar to the type of stimulus that was conducted during the 1990's.
State actions are occurring in China which will have an impact on relations with the US. If there is a bail-out of domestic firms which export to the US, will this be considered unfair trade? Within the private sector, many are wondering whether the government is implementing an approach known as guo jin min tui or “the state advances as the private sector recedes”.
From
http://www.ft.com/cms/s/0/3c301096-d37b-11dd-989e-000077b07658.html?nclick_check=1
The Chinese economy is trying to maintain a growth rate of over 8% which is needed to minimize the potential labor unrest issues. It is hard to argue with a move back to statism if the US is not doing the same.
Moscow, which has pledged $200bn to mitigate the effects of the economic downturn, late on Thursday published a list of 295 strategic enterprises entitled to preferential government support.
From http://www.ft.com/cms/s/0/fb228bfa-d385-11dd-989e-000077b07658.html
Moscow has seen significant deterioration in their exchange rate with the fall in oil prices. Central bank reserves have been used to maintain the currency peg but reserve outflow is significant. There will be increasing state control of trade, domestic industries, finance and commodities which enhance the power of a centralized government.
The list can go on, but you get the point. This movement will mean more conflict on trade between countries, less failure of poor companies, and a strong appetite for taxes and debt. Yes, it is needed today but what will be the long-term costs.
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