Global Fiscal Stimulus - Who Can Top China?
The global central banks' sharp dropping of interest rates is a natural monetary policy solution to the economy's woes, but over the weekend, FT's Munchau correctly states that fiscal policy - using government spending and tax incentives - will be the key to pumping the global economy.
The future of China (according to CNBC, it contributed to 27% of the world's economic growth) relies on a healthy economy and they anted up big yesterday with a $586 billion stimulus plan that amounts to 16% of its economic output last year. It makes the US's emergency $100 billion stimulus plan that Obama wants passed before January 20 look puny. But I'd expect that Obama is planning his own Big Bang plan. Every country is in - the G20 nations (including lynchpins China, Russia, India and Brazil) just met and committed to fighting the global recession (as they should, they are more susceptible to a crash than the G8).
Unfortunately, the continuing wave of bad news will undermine any investor and consumer confidence that the concerted effort that every government has now signed on.
Hmm.. it's all becoming very interesting now that consumption has slowed down and the beneficiaries of consumption are now feeling it.
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Even 580 billion is small compared to the size of the GDP. I am sure it will help, but seems like all of these bailouts are just covering up inefficiencies that have to get worked out of the system. These bailouts will fail if the underlying problems are not solved.
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China is in deep, deep do do in this global recession (possibly depression). They've scaled they're whole economy massively in outside consumption and we're already looking at 100k+ factories closing down in a 1 year period. I have a prediction we're going to see some rather "interesting" geopolitical events in Asia in the next few years.
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Prediction - the United States government is going to finally realize that we can't let our manufacturing base rot! US manufacturing with the assistance of the government is going to get more productive as a jobs engine.
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