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Archive for the tag “fiscal deficit”

China’s Fiscal Dilemma

The Chinese government is likely to face a tricky economic policy choice in the second half of this year. If it loosens its fiscal stance, public finances will worsen significantly. But if it cuts expenditure to offset the pandemic-related revenue shortfall, growth will be lower, with dire consequences.

Read Here – Project Syndicate

India’s Dangerous Investment Gap

India’s celebrated position as the world’s fastest-growing large economy conceals a dangerous weakness: Too few people seem to want to invest in the country. Even going by the government’s growth figures, private investment is shrinking at an increasing pace — by 1.9 percent between January and March, and by 3.1 percent between April and June.

Read Here – BloombergView

Should India Ditch It’s Fiscal Deficit Target?

India’s biggest money managers have one piece of advice for Prime Minister Narendra Modi: Investors will forgive a higher budget deficit if the cash is spent on roads and bridges instead of food and fuel subsidies.

Read Here – Bloomberg

India’s Growth Crossroads

As the slowdown in the world’s major industrial economies drags on, growth in developing Asia is being affected. A serious burden will likely be placed on the region’s major economies, particularly its two giants, India and China. Both countries’ external sectors have clearly been hit hard, while domestic consumption is stagnating. Fixed-asset investment in India rose by only 2.3% in the first half of 2012, compared to 9% in the year-earlier period.

Read Here – Project Syndicate

The Long Road of U.S. Fiscal Reform

President Barack Obama in his State of the Union speech reiterated his call for a bipartisan agreement that would stabilize the debt and end a period where fiscal policy has lurched from crisis to crisis.

This ambition is broadly shared, but profound disagreements remain over the composition of measures to address debt and growth. Democrats insist on a “balanced package” that includes substantial new revenue and modest changes to entitlements. Republicans see the fiscal problem primarily as a spending problem and want deep and broad-ranging cuts. Prospects for a major agreement, a “grand bargain,” seem as remote as ever.

Read Here – Council on Foreign Relations

New IMF Thinking on Capital Controls Is a Good Start

The International Monetary Fund has rethought its doctrine on capital controls. The IMF, which previously favored unfettered flows of money across borders, now accepts that controls are sometimes necessary.

This is a real improvement, yet it’s incomplete because it lacks a mechanism for supervision and enforcement. The fund can’t rectify that omission by itself. Member governments can and should.

The previous orthodoxy said that restricting international flows of capital is almost always wrong: The benefits of liberalized capital markets exceed the costs. Even before the global recession that started in 2008, successive financial crises had challenged this idea. Surging capital flows are capable of destabilizing and even overwhelming the financial systems of developing countries.


Read Here – Bloomberg


Global Economic Turmoil To Continue Till 2015, Says World Bank Chief Economist

There is reason to believe that the global economy will have to navigate troubled waters till 2015, since the Eurozone is now in recession and the crisis will take time to abate. Europe has made several important moves since December 2011, by injecting some essential liquidity in the system. But it is necessary to understand that the injection of liquidity buys time for reform, but is not reform. Over the next two years, there will be battles to repair the fault lines in the construction of the eurozone that got exposed by the global financial crisis of 2008. The hope is that after this period, the global economy will steady up, with the emerging economies becoming the growth poles, while industrialised nations witness slower but steady growth, says Kaushik Basu.

Read Here – The Economic Times

Why China May No Longer Be America’s No. 1 Debt Buyer

You hear it all of the time. The problem is that the government is borrowing from China to fund our stupid spending programs, or popular subsidies, or tax cuts. Mitt Romney (remember him?), in a presidential debate, defined his criterion for deciding whether spending is worthwhile thusly: “Is the program so critical it’s worth borrowing from China to pay for it?” Big Bird famously didn’t meet that test. In the vice-presidential debate, Paul Ryan criticized subsidies for electric cars, and wondered “Was it a good idea to borrow all this money from countries like China and spend it on all these various different interest groups?” Democrats do it, too. Pollster Mark Mellman, writing in The Hill, described how he used the “borrowing from China” line in a recent poll.

Read Here – The Daily Beast

Getting down to brass tacks

IN THE negotiations to reduce America’s long-term deficit and to avoid the “fiscal cliff” of automatic tax increases and spending cuts at the year’s end, Republicans have so far done most of the retreating. But they still want something in return. Emerging from the first—and so far only— negotiating session with Barack Obama on November 16th, Mitch McConnell, the leader of the Republican minority in the Senate, said he was “prepared to put revenue on the table, provided we fix the real problem.” By that he meant entitlements, in particular the big three: Social Security, Medicare and Medicaid—pensions, and health care for the elderly and poor, respectively. On November 20th John Boehner, the Republican speaker of the House, demanded that Mr Obama’s health-care plan should also be on the table.

Read Here – The Economist

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