THE world has moved into a "new and more dangerous phase" of economic uncertainty: Zoellick

Danger ahead, says World Bank chief Robert Zoellick

THE world has moved into a "new and more dangerous phase" of economic uncertainty because of the European sovereign debt crisis, according to World Bank president Robert Zoellick.

In an exclusive interview with The Weekend Australian, Mr Zoellick said the European economic problems were far more intractable and serious than the US economic problems.

And he worried that the British riots could derail the British budget austerity program.

"I believe what (British Prime Minister David) Cameron is doing in the UK is really necessary. My concern would be if the politics knocked it off course."

Despite decades of fixing problems at the top of US and international institutions, Mr Zoellick could offer no ready solution to Europe's problems.

"In the past couple of weeks the world has moved from a troubled multi-speed recovery - with emerging markets and a few economies like Australia having good growth, and developed markets struggling - to a new and more dangerous phase."

He urged European leaders to approach their continent's sovereign debt malaise with a greater sense of urgency, and lamented the European Union structures that made effective economic reform difficult.

I read this earlier but noticed Fox news has been reporting this interview so thought to post it here. So here we have the World Bank President acknowledging an age of economic uncertainty and new and dangerous phase. Quite a profound statement that shows a couple of key things. One being that economic crises persist despite upbeat and optimistic forecasts to the contrary.

So called temporary factors are in fact, factoring less into economic forecasts as problems continue to become embedded in world economic trends. Hence the uncertainty, and it seems investors are beginning to see the writing on the wall, and the recent behavior of share markets is reflecting this.

I see economic developments continue to deteriorate over time and we'll see increasing desperation to contain intensifying crises. The policy of the Fed Reserve particularly with its interest rates, also indicates this. The WB President has an optimistic view of the Australian economy and though he is correct in a lot of ways, Australia's economy is showing signs of softening and we have just reported an increase in unemployment from 4.9 per cent to 5.1 per cent (still comparative low) and increasing strain on the retail sector and housing market. We still have room to move with interest rates, but the issue with the RBA is inflation and the mining boom creating a two-speed economy.

The problem in Europe is that we have a currency union, and thus cannot print like Uncle Sam does.
This means spending cuts and more deeper spending cuts which affects growth of the Europian economy.
Its like the gold standard, and this is the main reason for interest rates to rise because there is a risk of default.

tho I agree with the worried tone of the article I can not help but see yet more unhelpful finger pointing going on at the top.. which I guess will only continue until one side finally crashes talking all down with them...

Instead of coming together and helping each other out of this mess (that does not mean NWO style) they seem to be intent on pointing out each others flaws making the markets even more unstable and creating their own self fulfilling prophecies *shakes head*

But I guess at the end of the day people have to have someone to blame and it'll always be the other guy.

Originally posted by earthling42
The problem in Europe is that we have a currency union, and thus cannot print like Uncle Sam does.
This means spending cuts and more deeper spending cuts which affects growth of the Europian economy.
Its like the gold standard, and this is the main reason for interest rates to rise because there is a risk of default.

How is the currency union like a gold standard?

The European Central Bank cannot generate Euros like the Fed can US$ only because Euro hasn't become the preferred trading currency of the world. The objective of the monetary union was to achieve exactly that; at least it appeared so when Iraq started trading its oil for Euros in 2001 and converted all it forex holdings to Euros, with Iran planning to follow suit a few years down the road. But the invasion of Iraq in 2003 changed all that. It appears a different plan won the war of currencies.

It simply means EU members are forced to live within their means like everyone else except US. But ECB can print Euros like Zimbabwe prints the Zimbabwe Dollar with similar consequences.

reply to post by Observor


The ECB can print, but they wont unless there is no other option left but printing.
With the rising interest rates of Italy and Spain they started to purchase bonds to reduce the rates but Trichet has put forward a list of what he wants in return, more and deeper cuts in spending.

I think a currency union is a great tool for a stable economy and like the gold standard because country's can not just print.
So yes they have to live within their means

Edit:
You say, except US, mind you that higher prices of food and oil have an effect on the growth of the real economy.

Originally posted by earthling42
reply to post by Observor

 

The ECB can print, but they wont unless there is no other option left but printing.

The same as any other central bank.

I think a currency union is a great tool for a stable economy and like the gold standard because country's can not just print.

Yeah, sure, if you have national governments and central banks both of which are irresponsible not to understand the consequences of inflation, they can be contained only by removing that power from them. However, that isn't much of a solution. Most of EU member countries' central banks before the monetary union were private, precisely to protect monetary policy from immdeiate political compulsions. But if that didn't work, I am not sure this will work either. At the moment it works only because the largest economies of EU, France and Germany, have no political compulsions to inflate the currency. If they ever reach that stage there will be only two options left: either inflate the currency or see the monetary union break up.

In essence the monetary union is nothing more than the member countries allowing France and Germany to dictate their monetary policy.

You say, except US, mind you that higher prices of food and oil have an effect on the growth of the real

The higher prices of food and oil are because of demand-supply equation of the commodities, not the money supply. They are higher everywhere, not just in the US. At the moment the Fed is not generating more US$ than is demand for them both locally and globally. The US is not going through a monetary inflation. The US Congress and President have no influence over the monetary policy of the Fed. They can request the Fed to inflate the currency, by asking it to buy government debt, but the Fed can always refuse it just like the ECB.

There has been a major disconnect with the original purpose of money. Money started as a way to measure an individuals input and output from society and balance the supply with demand. The top end of the pyramid is getting too heavy through corruption and regulation with the base starting to fracture. What 50 Euro means to one person does not mean the same to someone else and here is a big problem with the value of money.

reply to post by Observor


Yes we did have our own currency, as did all the members of the Eurozone.
Its the old system, a floating currency which we still have against the Swiss franc, the dollar, the yen and all other currency.
What we witness today is that all over the world central banks are intervening to keep their currency value at a low level.
This is the cause of inflation, and thus higher food and oil prices, their notion of stability seems to be a market position.
The whole floating currency system is laughable, because it effectively drains value of your savings account, drives prices up and does not care about the poor who will be unable to feed themselfs and their kids because of high prices.
Goods have to be transported, and for transport oil is needed, it just so happens, that oil must be traded with dollars.
Dollars that have lost value through QE1/2, and low to zero interest rates.
You say that it is not because of increasing the money supply, but do you not know that increasing means devaluation of the same dollar causing prices to rise?
Furthermore, for the last years Uncle sam did not care about a budget, he just spends, and spends 1.5 trillion more than his income.
No problem, because america has a printer, so problem solved.


This is why i see more and greater potential in a currency union, as printing is not an option.
It pushes governments to have a balanced budget, and live within their means, and to not spend more than the budget allows for.
That is true stability, not the devaluation of currencies for market positions, and drive the cost of living to new hights.

reply to post by earthling42

This is why i see more and greater potential in a currency union

I do agree and on the international stage the IMF has been looking at the SDR (Special Drawing Right) as a tool to establish an international currency unit for better global trade and economic cohesion. There are a lot of tough debates and difficult challenges going on as the G20 now has policy control over this. At the moment they are using a basket of currencies fixed to the price of gold to establish an international currency unit. It looks like they are calling for hands on deck, so if you have head for this kind of stuff and some time up your sleeve you can do a 2 week online course www.imf.org... and they are offering short 2 weeks jobs and longer depending on how things go. The next round closes August 31, 2011.

To the mods, I know this could be perceived as recruiting but we are talking about our global economy and it is more about job opportunities so please be kind.

Originally posted by earthling42
The problem in Europe is that we have a currency union, and thus cannot print like Uncle Sam does.
This means spending cuts and more deeper spending cuts which affects growth of the Europian economy.
Its like the gold standard, and this is the main reason for interest rates to rise because there is a risk of default.

Default is a risk? Funny... Iceland defaulted.

Ireland is going onto a 2nd bailout, so howcome Ireland holds 33 BILLION DOLLARS of US debt still? Why can they not sell that?

reply to post by JennaDarling

Default is a risk? Funny... Iceland defaulted. Ireland is going onto a 2nd bailout, so howcome Ireland holds 33 BILLION DOLLARS of US debt still? Why can they not sell that?

The GFC caused a lot of pain and it was up to each nations to decide how to accept this pain. The basic choice was to either get a broken leg or arthritis. The broken leg hurts a hell of a lot more, you cannot move for a while but overall the recovery is quicker and after a while you are on your way again. This was represented by the bank closing its doors and all the accounts thrown in the bin on the way out.

The other option was to keep the bank accounts open which has turned into a more gradual and chronic condition slowly inhibiting movement and becoming more disabling over time. The pain intensity is not as high, but the pain duration is a lot longer.

It has been said there is an elephant in the room that people where fearful to talk about, it is more like a herd of elephants that have trashed the house. Houses can be rebuilt, but we still need to work out what to do with these elephants.

Originally posted by JennaDarling

Originally posted by earthling42
The problem in Europe is that we have a currency union, and thus cannot print like Uncle Sam does.
This means spending cuts and more deeper spending cuts which affects growth of the Europian economy.
Its like the gold standard, and this is the main reason for interest rates to rise because there is a risk of default.

Default is a risk? Funny... Iceland defaulted.

Ireland is going onto a 2nd bailout, so howcome Ireland holds 33 BILLION DOLLARS of US debt still? Why can they not sell that?

Investors holding 33 billion of dollars as an investment, Not the government.

Iceland is not comparable to Ireland because Iceland has its own currency and when the crisis hit in 2008 and the banks did collapse, they were not bailed out, but nationalized.
Ireland is a member of the currency union, and when the banks failed, they were bailed.

In the space of just months the buying power of those holding Iceland’s currency plunged by about 75%. The innocent citizens of Iceland who had nothing to do with its banking foibles were robbed of three quarters of their accumulated wealth.

ilene.typepad.com...

reply to post by kwakakev


I never really bothered about economics, but since the start of the crisis i'm learning a great deal about it

reply to post by earthling42


Cool , it is an important one and half the reason we are in this mess is because people did not care. When the system is running smoothly they should not have to either. Unfortunately we have a big mess and a cultural $#!t storm going on with what to do about it. I do give it a medium risk for all hell breaking loose. If it can be sorted out in a calm and responsible manner then wars should start to settle down, global trade pick up and a better standard of living for all pick up. Rounding up these elephants is going to be tough job and take some balls though.