>A general Economics discussion

>Here’s a few questions to start a discussion:

  1. Has the global recovery taken hold or are we heading for a double dip recession?
  2. If we are in a recovery, have economic policies contributed?
  3. If economic policies have contributed, is that due to fiscal or monetary policies?
  4. Should governments now consolidate and excercise austerity, or add more stimulus?
  5. If more stimulus is needed then what form should that take?

P.S. Sorry about not updating the site for so long. The only computer I’ve been able to access in the last few weeks has been my parents, and from that I can’t log onto the site (no idea why).

5 comments

  • >Thats a tough one.1. The financial markets have definitely recovered, as have the banks. Most companies are posting great earnings figures and have been for 3-4 quarters now.When I listen to the news of the market it's very difficult to think that the economy is not doing well, but that's why i'm not an economist.i can't see a double dip unless the governments remove the stimulus packages.2. Yes we have recovered from the 'crefit crunch' and the backing of major financial institutions did contribute to that.3. don't really know the diff between fiscal and monetary.4. i think they need to start turning the tap off. the banks passed their stress tests, so there should be no need to support them. the banks are still recieving free money from the governments which they need to start freeing up and lending to the consumer. governments need to put coercive policies in place to ensure this happens, and quick.

  • >it looks like i contradicted myself with answers 1 and 4, but i meant the double dip would only occur if they removed everything all at once and within the year.

  • >Interesting answer. I'll respond to each in turn (and I apologize in advance for going on for a long time):1. I agree that the recovery has taken hold. I think it's perhaps more delicate than you seem to think however, and the risk of a double dip recession, although not as high as many fear-mongerers would have you believe, is still present. The way I think this could happen is if perceptions and expectations change. Greece created widespread panic because it altered expectations about the level of sustainable debts in other countries. The recovery has not been dramatic in the developed world largely because expectations about market strength are still weak and skeptical. Such a huge change in market expectations would require a big event, but it's not out of the picture. Some fears come from China, as there are several asset bubbles there, such as the property market. China has made an effort to tackle these bubbles, but they're still growing, and that leaves risk. A similar story is present in other countries too, largely in the east. If these bubbles burst, remembering that east Asia is the driving force of the global economic recovery, then fears will spread. Rather than a double dip recession I think a 'lost decade' (as in Japan) is more likely, particularly in those countries cutting their deficits too fast. The biggest examples of deficit cutting countries from the past twenty years have not actually been as speedily implemented as many plans being implemented today. Indeed the most spoken about example of Canada, made cuts during a global boom, so even if like for like plans were made the results would still be worse. Yet as history shows, ruthless and rapid cuts result in long term high rates of unemployment. When someone is unemployed for a long time their prospects of employment deteriorate, and sooner or later what Friedman termed the 'natural rate of unemployment' will rise, meaning that countries' labour forces will be lower than otherwise might have been for some time to come.2. I agree that the policies have contributed, though I'm more talking about government policies rather than separate institutions as you suggest.

  • >3. Fiscal policies are basically policies to do with tax and expenditure, hence the stimuluses have been fiscal policies. Monetary policy is policy to do with monetary value, so keeping interest rates low has been the major monetary policy. In my view both fiscal and monetary policies have played a role, though the stimulus was/is probably less important than bailing out the banks and keeping interest rates low.4. I agree that some austerity is called for. It's not how much that's cut but where it's cut from and what impact is felt that matters (which means that if actual 'waste' is low then the amount of cuts matters a great deal). So deficit reduction strategies need to vary from country to country. However as US politicians frequently point out, US history shows that cutting too much too fast can throw you back into recession. I agree with you that it is unlikely this will happen, but caution is nevertheless a pre-requisite for any future policy action.5. Could more stimulus be needed alongside increased austerity measures? The US haven't ruled that out yet, and are still waiting to see if a new 'mini-stimulus' is required. I think this is wise. Introducing a new stimulus now could be fruitful, but it would definitely be dangerous when the financial markets are questioning what sustainable levels of debt are. However re-assuring the markets by telling them that you have the ability to introduce a new stimulus, but that it is not yet needed, could shore up confidence.

  • >By the way just to throw a bit of sand in the works there's now a global downturn in manufacturing, a slowdown in the US economy, and bubbling commodity prices that suggest the posibility of a second dip. Plus house prices are still far too high relative to rents.

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