From the Washington Post (see link here)
The flood of dollars, euros, yen and pounds pumped into the global economy by major central banks in recent years has yet to pay off in the form of job creation, investment and stronger economic growth. It has kept banks afloat, let corporations build large cash reserves and restructure debt and, arguably, staved off a worldwide depression. But the ultimate aim — strong and self-sustaining growth in the world’s core industrial economies — remains out of reach, and analysts are wondering whether central banks are at the limits of what they can do to help.
Richard Koo and others are arguing for new paradigms and new policies. Think of stepping off the known world into the unknown. Here be dragons.
There be rough waters ahead indeed. Into the unknown would be an option, but I think that will be a last resort and I'm really hoping things even out and we don't have to go down that path. The most interesting thing I took from this article was the section where it said the monetary influx only had a minimum boost. This sounds like a dismissal of the fiscal multiplier. This is contrary to the earlier report we had heard about the European Central Bank admitting they underestimated this feature. Conflicting reports, I don't know what to think.
ReplyDeleteI do not believe that central banks and leaders of nations would allow a system to just go into the unknown. However, no one really knows what to do. All of the money that was created and pumped into economies was supposed to be invested in economic stimulating projects. People, though, believe that investing is too risky at this time, so economies are not getting the expected growth. Lets pray someone out there figures this out soon though.
ReplyDeleteOne thought: could increased investment in the "third world" be a step in the right direction? With the idea of diminishing returns in mind, those small investments at the very bottom could prove worthwhile. If we look to get money in the hands of those that don't consume our goods, maybe this increase in consumption would be beneficial. These investments in individuals, small businesses, and areas could not only provide payoffs on our capital (in the form of interest) but allow for wealth accumulation in poorer areas so these people can begin to purchase U.S. and other products.
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ReplyDeleteFirst off, I think it is important to note what expansionary monetary policies have done in terms of keeping global economies afloat and preventing the possibly of a large scale depression. With that being said, I do see the need to create new polices. Has the recent crisis sparked a new series of economic though? Where Keynesian economics was implemented after the Great Depression, maybe now is the prime time to rethink macroeconomic policies.
ReplyDeleteThe article brings up a good point about the limits of expansionary policy. As Timothy Adams put it, “there are limits, and we are probably at the threshold.” With central banks and governments already using all the tricks up their sleeve, what could be next? What the world needs is another rainmaker like Keynes or a big shock that will jump-start the global economic just as the .com boom did.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/15/the-best-reason-to-worry-about-the-deficit/
ReplyDeleteThis blog post is interesting when talking about Koo and new macro- economic thought. Ezra Klein points out that we may be addressing the wrong points concerning the deficit (similarly to Koo), take a look!