World Bank President Warns of 'Sugar High' From Stimulus
A interesting side fact that I learned from this article... the U.S. is more socialistic than China - at least by stimulus spending standards :)
May 30 (Bloomberg) -- World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.- Click here for the rest of the article.
“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview yesterday with Bloomberg Television’s “Political Capital with Al Hunt.” “When unemployment increases, that’s probably the most political combustible issue.”
Zoellick’s caution is a contrast with private economists, who are raising their outlooks for growth from India to China as stimulus measures take effect. The biggest developed and emerging nations have committed spending increases and tax cuts totaling 2 percent of their combined economies, a level the International Monetary Fund recommended to end the recession.
The World Bank is monitoring private companies’ abilities to roll over “a lot” of debt in the developing world, Zoellick said. At the same time, he played down risks to the global recovery posed by rising U.S. Treasury yields, saying that “in terms of absolute levels, rates are still pretty low for most players.”
Zoellick also said that the dollar will remain the world’s main currency “for a long time,” and noted that investors flocked to the dollar as a haven during the worst parts of the financial crisis.
Reagan, Bush Terms
Zoellick, 55, took the helm of the World Bank in 2007, and served as U.S. deputy secretary of state and chief trade negotiator in the Bush administration, and in positions at the Treasury Department under President Ronald Reagan. At State, he played a central role in formulating policy toward China, before departing government for a stint at Goldman Sachs Group Inc.
Chinese officials’ comments calling for a new international currency have been “over-read” and may be more of an indication of the nation’s desire to free up its capital flows, Zoellick said. He added that China’s stimulus has helped stoke growth in the nation that “may even beat expectations a little bit.”
China this year approved a $585 billion (4 trillion yuan) stimulus plan, and the U.S. is now implementing a $787 billion package of tax cuts and spending that President Barack Obama signed in February.
“Right now, the international system appears to have a sufficient amount of stimulus,” Zoellick said. “The danger is if you spend too much government money, you create a different problem.”