IMF warns global recovery might not be sustained

By Agence France-Presse, Updated: 10/6/2010

Rich and emerging economies must dramatically change the way they trade with each other or risk throttling the global economic recovery, the International Monetary Fund warned on Wednesday.

In its latest economic outlook, the IMF said growth would slow more than previously expected in 2011, as the United States, Europe and Japan continue to struggle and China remains overly dependent on exports.

The recovery is "neither strong nor balanced and runs the risk of not being sustained," warned Olivier Blanchard, the IMF's chief economist.

Painting a picture of a faltering developed world -- where business is still struggling to pick up where government crisis spending left off -- the IMF predicted global growth would be pared back to 4.2 percent next year.

That is less than the 4.8 percent growth expected this year and 0.2 point below the IMF's July forecast for 2011.

While restocking had helped short-term growth in the United States, Japan and some parts of Europe, the IMF said advanced economies were still reliant on dwindling government spending.

"For the past year or so, inventory accumulation and fiscal stimulus were driving the recovery. The first is coming to an end. The second is slowly being phased out," the IMF said in its twice-yearly World Economic Outlook.

The IMF slashed its US growth forecast for 2011, to 2.3 percent, lopping 0.6 points off its July forecasts.

The growth forecast was also trimmed for this year, down 0.7 points to 2.2 percent, with warnings of "a weak recovery in coming quarters."

The IMF recommended that some central banks, like the US Federal Reserve, continue their ultra-loose monetary policies, but warned the impact of such policies would now be limited.

"Not much more can be done, and one should not expect too much from further quantitative or credit easing."

Increased exports must take up the slack, it added.

"Many advanced economies, most notably the United States, which relied excessively on domestic demand, must now rely more on net exports."

Meanwhile the IMF said that rich countries, many of which are heavily in debt, would have to trim spending and balance their books in the medium term.

"Fiscal stimulus has to eventually give way to fiscal consolidation, and private demand must be strong enough to take the lead and sustain growth."

There was a particular warning for Europe, with "severe external financing constraints" forecast for debt-laden Greece, Ireland, Portugal and Spain.

The picture could not be more different for emerging markets like India and China, where growth continues, but is limited by an over-dependence on exports to Europe, Japan and the United States that must be addressed.

"Emerging market economies with large current account surpluses must accelerate rebalancing. This is not only in the world economy's interest, but also in their own."

Wading into sensitive political waters, the IMF said China must allow its currency to strengthen to boost domestic demand and reduce its reliance on exports.

"To the extent that a stronger Chinese currency eases this process, other surplus countries in the region could follow suit, which would facilitate the needed shift towards domestic sources of growth," the IMF said.

Emerging markets are expected to expand at a rate of 7.1 percent this year and 6.4 percent in 2011.

Advanced economies are expected to grow more slowly, at 2.7 percent in 2010 and 2.2 percent next year.

The WEO report came ahead of Friday's opening of a two-day annual meeting of the IMF, where its 187 member nations are set to focus on a looming currency war and the dangers of protectionist trading policies.

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60 Minutes: Sunday October 03, 2010 (full episode)

60 Minutes: Sunday October 03, 2010 (full episode)

Lesley Stahl goes to Iraq to report on the sources of conflict that could erupt once the U.S. withdraws; Also, Ken Feinberg and the thousands of claims stemming from the BP oil spill; Plus, philanthropists Bill and Melinda Gates

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US Is 'Practically Owned' by China: Analyst

US Is 'Practically Owned' by China: Analyst

By: Antonia Oprita

The US supremacy as the top world economy will end sooner than many people believe, so gold is a better investment than the dollar despite it hitting a new record, Tom Winnifrith, CEO at financial services firm Rivington Street Holdings, told CNBC.com Monday.

Gold [XAU=X  1309.25    4.00  (+0.31%)   ] hit a new record high Monday and silver [XAG=X  21.8    0.10  (+0.46%)   ] rose to another 30-year peak as investors were worried about the dollar weakening further after the Federal Reserve hinted at more quantitative easing last week.

The US trade deficit and debt continue to grow and the authorities are reluctant to address the problem, preferring to print money, Winnifrith said.

"America is practically owned by China," he said.

He reminded of the fact that in 1900, sterling was the world's reserve currency but by 1948, that was no longer the case as the British Empire collapsed.

"America is doing what Britain did," Winnifrith said. "America spends much more than it can afford and it's not addressing the issue."

In 1832, China and India were the world's two largest economies and by 2032, they will regain that status, he predicted.

"The 200 years when Britain and the US were the top two economies were an aberration and that will change," Winnifrith said.

"The decline of empires has happened much faster than folks think. I believe that gold will be a far better bet

in 20 years than the dollar," he added.

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We’re No. 1(1)!

We’re No. 1(1)!

By THOMAS L. FRIEDMAN

I want to share a couple of articles I recently came across that, I believe, speak to the core of what ails America today but is too little discussed. The first was in Newsweek under the ironic headline “We’re No. 11!” The piece, by Michael Hirsh, went on to say: “Has the United States lost its oomph as a superpower? Even President Obama isn’t immune from the gloom. ‘Americans won’t settle for No. 2!’ Obama shouted at one political rally in early August. How about No. 11? That’s where the U.S.A. ranks in Newsweek’s list of the 100 best countries in the world, not even in the top 10.”

Thomas L. Friedman

The second piece, which could have been called “Why We’re No. 11,” was by the Washington Post economics columnist Robert Samuelson. Why, he asked, have we spent so much money on school reform in America and have so little to show for it in terms of scalable solutions that produce better student test scores? Maybe, he answered, it is not just because of bad teachers, weak principals or selfish unions.

“The larger cause of failure is almost unmentionable: shrunken student motivation,” wrote Samuelson. “Students, after all, have to do the work. If they aren’t motivated, even capable teachers may fail. Motivation comes from many sources: curiosity and ambition; parental expectations; the desire to get into a ‘good’ college; inspiring or intimidating teachers; peer pressure. The unstated assumption of much school ‘reform’ is that if students aren’t motivated, it’s mainly the fault of schools and teachers.” Wrong, he said. “Motivation is weak because more students (of all races and economic classes, let it be added) don’t like school, don’t work hard and don’t do well. In a 2008 survey of public high school teachers, 21 percent judged student absenteeism a serious problem; 29 percent cited ‘student apathy.’ ”

There is a lot to Samuelson’s point — and it is a microcosm of a larger problem we have not faced honestly as we have dug out of this recession: We had a values breakdown — a national epidemic of get-rich-quickism and something-for-nothingism. Wall Street may have been dealing the dope, but our lawmakers encouraged it. And far too many of us were happy to buy the dot-com and subprime crack for quick prosperity highs.

Ask yourself: What made our Greatest Generation great? First, the problems they faced were huge, merciless and inescapable: the Depression, Nazism and Soviet Communism. Second, the Greatest Generation’s leaders were never afraid to ask Americans to sacrifice. Third, that generation was ready to sacrifice, and pull together, for the good of the country. And fourth, because they were ready to do hard things, they earned global leadership the only way you can, by saying: “Follow me.”

Contrast that with the Baby Boomer Generation. Our big problems are unfolding incrementally — the decline in U.S. education, competitiveness and infrastructure, as well as oil addiction and climate change. Our generation’s leaders never dare utter the word “sacrifice.” All solutions must be painless. Which drug would you like? A stimulus from Democrats or a tax cut from Republicans? A national energy policy? Too hard. For a decade we sent our best minds not to make computer chips in Silicon Valley but to make poker chips on Wall Street, while telling ourselves we could have the American dream — a home — without saving and investing, for nothing down and nothing to pay for two years. Our leadership message to the world (except for our brave soldiers): “After you.”

So much of today’s debate between the two parties, notes David Rothkopf, a Carnegie Endowment visiting scholar, “is about assigning blame rather than assuming responsibility. It’s a contest to see who can give away more at precisely the time they should be asking more of the American people.”

Rothkopf and I agreed that we would get excited about U.S. politics when our national debate is between Democrats and Republicans who start by acknowledging that we can’t cut deficits without both tax increases and spending cuts — and then debate which ones and when — who acknowledge that we can’t compete unless we demand more of our students — and then debate longer school days versus school years — who acknowledge that bad parents who don’t read to their kids and do indulge them with video games are as responsible for poor test scores as bad teachers — and debate what to do about that.

Who will tell the people? China and India have been catching up to America not only via cheap labor and currencies. They are catching us because they now have free markets like we do, education like we do, access to capital and technology like we do, but, most importantly, values like our Greatest Generation had. That is, a willingness to postpone gratification, invest for the future, work harder than the next guy and hold their kids to the highest expectations.

In a flat world where everyone has access to everything, values matter more than ever. Right now the Hindus and Confucians have more Protestant ethics than we do, and as long as that is the case we’ll be No. 11!