U.S. Cannot Counteract Global Economic Slowdown Alone

By Alex Mui ’17

The global economy is entering uncharted waters in this unprecedented period of dissenting monetary policy. The United States is continuing to raise rates after nearly a decade of quantitative easing, meanwhile other major central banks such as the European Central Bank (ECB) and the Bank of Japan (BOJ) are lowering rates – in the case of Japan and some major European powers, even entering the realm of negative interest rates. Even experts are unable to confidently predict the outcome. Further complicating matters, a weak commodities market and a global economic slowdown have already begun to destabilize the global economy at this crucial juncture.

After nearly a decade, the recovered United States is once again a primary contributor to global GDP growth. In 2015, the World Bank estimates the U.S. contributed 23% of global growth and is projected to contribute 21% in 2016. However, the slowdown of the European Union and major emerging economies has left the United States as one of the only remaining engines of growth. While an encouraging endorsement of the U.S. economy, experts are concerned that it will not be enough to drive global economic growth.

At a meeting of the G-20’s finance ministers and central bank governors, the IMF raised preliminary warnings about the growing risks to global economic expansion. They cautioned central bankers to consider the consequences of perpetual quantitative easing and the implementation of negative interest rates. In addition to diminishing returns over time, they cite the dangers of continuing with and delving deeper into such unprecedented territory. The response of the markets at both the individual and institutional levels remains unknown and unpredictable – a dangerous proposition with the fiscal health of the global economy at stake.

Treasury Secretary Jacob Lew stated in an interview that “The world can’t depend on the United States to be the consumer of first and last resort…That’s not a powerful enough engine to drive the whole global economy. So there needs to be more demand in places where there’s the capacity to generate it” (Wall Street Journal). The IMF seems in agreement with Lew and has recommended stimulus through increased government spending from other major markets to promote consumption and bolster global demand. The efficacy of these measures remains to be seen.

Filed in: Economy

You might like:

Tax Benefits Package for Trump? Tax Benefits Package for Trump?
GOP Strongly Backs Tax Reform GOP Strongly Backs Tax Reform
Looking Into Icelandic Politics: Elections Looking Into Icelandic Politics: Elections
The Most Powerful Passport The Most Powerful Passport
© 2018 Cornell Current. All rights reserved. XHTML / CSS Valid.
Proudly designed by Theme Junkie.