26th September 2011
With another global recession on the cards and very few finance and political leaders around the world prepared to call for bold action. The IMF MD Christine Lagarde, in a piece from Project-syndicate, has not only admitted that the global economy "has entered a dangerous new phase." But more importantly she has come up with four specific policy measures which could help the global economic recovery.
Since the financial crisis in 2008, economists and the models and assumptions they use to come to conclusions and predict the outcome of certain events, including recessions, have come under scrutiny by many including the mainstream media in recent years. Naked Capitalism highlights and comments on a video in which prominent economists discuss such models, with the main question being "what is a good model?"
Emma Dunkley of Citywire reports that the Eurozone still faces going into recession despite having good cash flow and healthy balance sheets. Interestingly the article says that Western economies are in a period of stagflation. Stagflation is a situation where economic growth is low but inflation is high and sometimes, policymakers in trying to lower inflation may further hurt economic growth. In the UK for instance, inflation is currently 4.5% which well above growth.
Lost in the current fortunes of Western economics is the performance of the emerging economies, which are continuing to grow. The IMF estimates that growth among emerging economics will surpass 6% in 2011 and 2012. However, The Economist points out that despite having a great decade the pace of economic growth is unlikely to continue.
In an interesting article in the New York Times by Todd Buchholz, he questions why Germany always seems to give in and bail out Greece, its lackadaisical Mediterranean neighbours. He suggests that the real motivation is not as obvious as you may think.
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