Lets face it, the crisis today is a result of a lack of regulations in the US and their failure of the Government to stand up to powerful banks.
It also is the result of cutbacks by state and local governments in the US, whom have all but negated the US federal government’s original stimulus, and no one in Washington is talking seriously about a second. The pitiful showdown over increasing the debt limit has produced the opposite: a Rube-Goldberg-like process for capping spending rather than increasing it, and a public that’s being sold the Republican lie that less government spending means more jobs.
Policy makers on both sides of the Atlantic for some reason seem to have forgotten that economic growth is the most important tonic to stimulate a job creation..
With anemic growth in America, the Japanese economy comatose, European austerity programs, and emerging markets (including China) pulling in their reins, the vicious cycle could become worldwide. If global demand for goods and services continues to fall behind the potential supply we’ll see unemployment rise further and growth slow even more — especially in Europe and the U.S.
Central banks may try to reverse this course. Ben Bernanke and company at the Fed have committed themselves to near-zero interest rates for the next two years. This obviously is not exactly a rousing endorsement of America’s economic prospects in the near term. Without an expansionary fiscal policy, low interest rates have little effect. Companies won’t borrow in order to expand and hire more workers unless they have reasonable certainty they’ll have customers for what they produce. And consumers won’t borrow money to spend on goods and services unless they’re reasonably confident they’ll have jobs.
Fiscal austerity is the wrong medicine at the wrong time and the US Republican majority in Congress and their T-Party cohorts are not only on the wrong track but also giving the wrong economic signals to the world. It is a recipe for disaster.
EU-Digest
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