The World Is Stuck In A Vicious Cycle: The Global Economic Crisis Is About To Go To A Whole New Level And Investors On The Wrong End of The Coming Crash Are Going To Be Absolutely Wiped Out

Monday, October 15, 2012
By Paul Martin

Investmentwatchblog.com
October 15th, 2012

SUMMERS: The World Is Stuck In A Vicious Cycle
Former Harvard president and former Obama economic advisor Larry Summers writes in the FT today that the debate between fiscal hawks and doves has paralyzed the global economy.

He refers to it as a struggle between “orthodox” fiscal hawks versus “demand support” views.

However you want to refer to them, their apparent inability to stop talking past each other has produced devastating consequences.

“International economic dialogue has vacillated between these two viewpoints in recent years. At moments of particularly acute concern about growth, such as in spring 2009 and now, the IMF and many but not all monetary and fiscal authorities tend to emphasize demand-support views. But the moment clouds start to lift, orthodoxy reasserts itself and attention shifts to fiscal contraction and long-run financial hygiene.

This is a dangerous cycle whatever your economic beliefs. Doctors who prescribe antibiotics warn their patients that they must complete the full course even if they feel much better quickly. Otherwise they risk a recurrence of illness and worse yet the development of more antibiotic resistance. So too with economic policy. Advocates of orthodoxy prize consistency. Those like me whose economic thinking emphasizes promoting demand worry that expansionary policies carried out for too short a time will prove insufficient to kick-start growth while at the same time discrediting their own efficacy and reducing confidence.”

The Rest…HERE

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