The Global Economic Horizon
By Larry Doyle on March 14, 2009 at 5:45 PM in Current Affairs, Economy, Equity Markets, Global Finance, International Monetary Fund, Obama Administration, Sense on Cents (Larry Doyle blog), Wall Street
While there is nothing like a nice 10% rally in equity markets to salve a wounded soul, let’s not get overly ebullient. The global economy is facing a host of issues the likes of which it has not seen in a long time, if ever.
I truly relish the honest perspectives offered by a number of our Thought Leaders. A recent piece posted by Professor Ken Rogoff, a former chief economist for the International Monetary Fund, and currently a professor of Economics and Public Policy at Harvard, lays out a logical road map for global interest rates, economic growth, sovereign defaults, and inflation. Let me preface Rogoff’s piece by stating the road will be long and steep!
What does Rogoff think about the prospects here in the United States under the Obama administration? He writes, “US long-term growth could be particularly dismal, as the Obama administration steers the country toward more European levels of welfare assistance and income redistribution.”
I strongly recommend Rogoff’s What is the Deficit Endgame? Please access a wealth of other global perspectives at the Thought Leaders link (in the left sidebar of Sense on Cents), which provides access to leading global economists and over 400 periodicals from around the world.
LD
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Thank you for the information, Larry. Rogoff’s article is certainly sobering. I understand that the Europeans are pushing back against Geithner’s spending message, and yet I heard him state earlier today that “Europe” is on board. It’s hard to tell what is happening and what’s absolute spin.
Those numbers that Rogoff gave on Italy’s predicament are horrifying:
“Italy, for example with a debt-to-income ratio already exceeding 100%, has been able to manage so far thanks to falling global rates. But as debts mount, and global interest rates rise, investors will become rightly nervous about the risk of debt restructuring.”
Makes my head spin. Appreciate the links and different perspectives provided.
Well at least everyone can agree that Obama socially engineered change means dismal prospects for the existing economy.
In all likelihood, a slew of countries will see output declines of 4-5% in 2009, with some. having true depression level drops, of 10% or more. .
So the the value will flow to countries that are the least leveraged?
It would seem that those with “in demand” natural resources will have a softer landing.
Hey Teak,
Within 4 years the United States will take on a more nationalistic tone with a renewed focus on Heavy Industry production and domestic resource extraction do to the destruction of the global economy.
The playing field is being decimated world wide which gives the United States the opportunity to re-write the game.
I haven’t been particularly impressed with Obama’s and social re-engineering. Don’t count on it happening from the One. I don’t see anymore than a few crumbs trickling down and the people will be so thankful.
It kinda seems like the existing economy has gotten into a pretty dismal state all on its own. It does seem to have had more than a few major dead-end-road features built into it.
Some of us like to think that Obama might be laying the groundwork for what will turn into the beginnings of an American economic renaissance. I see the dim outlines of a 21st Century clean energy infrastructure in the plan, that will eventually support a rapidly expanding industrial and agricultural base manned by a technologically savy, well-educated workforce.
Call me an optimist, but I think what we’re going through are the early stages of a transition. I also think that as dismal as the global economy might be, the US is best positioned to get there first.
Rogoff’s article was very helpful. I wonder if his projected increases in interest rates is too conservative at 3-4%. I remember rates of 14-15% in the early l980s. It seems that much of our economic health will be determined internationally. I am going to check your all stars in Sense on Cents; you have had some excellent sources.
Lizzy,
I think Rogoff is indicating an increase in interest rates from here of 3-4% which would put 10yr govt rates in the 6-7% range.
Thanks for keeping us up to date on this info, LD.
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