IT IS TIME TO LEARN FROM PAST: GREENSPAN

Written on the 14 May 2012

IT IS TIME TO LEARN FROM PAST: GREENSPAN

ONE of world’s most vocal economists blames the critical state of the global economy on a failure to learn from past mistakes.

Former US Federal Reserve chairman Alan Greenspan criticises bail-out methods used to address the European debt crisis.

“You do not solve excess deficits by funding them. The long-standing culture of intra-Eurozone lending from the north to south has not changed,” he told a recent Australia-Israel Chamber of Commerce
breakfast.

“Saving rates are much higher in northern Europe while debt in Greece is about 120 per cent of its gross domestic product – the highest in the European Union (EU). It is hard to resolve such imbalances until there are significant changes.”

Greenspan warns climbing debt will steer the global economy into a new credit crunch unless EU member states take action.

“International Monetary Fund studies show developed countries tend to resolve crises by raising taxes, which has a negative effect on economic growth. However, cutting spending has a lesser adverse effect,” he says.

“It is possible to reduce costs with a permanent merger between governments or eliminating the euro currency altogether. Political union is the least bad option.”

However, Greenspan describes downturns as inevitable in cyclical market economies.

“In 2008, we had an international lockdown of the stock market, money, mutual funds and global trade credits. We have not experienced such a breakdown of financial institutions since 1907. The global financial crisis was the worst the US had ever faced," he says.

“However, unless you change human nature, this will continue to happen when dealing with a market economy.”

He warns Chinese currency revaluation and political pressures will impact on Australia’s resources boom, predicting a high Chinese renminbi (RMB) will intensify economic contraction and political unrest.

“China is being pressured to allow the RMB to rise, but the Communist leadership fears it will bring significant contraction in job creation,” he says.

“The allure of party ideology is long gone, leaving the leadership with only prosperity to offer the people. Unemployment often creates political instability.”

Such developments would reduce demand for iron ore, forcing producers to sell at more competitive prices. Greenspan believes Australia could follow the example of Norway, which established a sovereign wealth fund (SWF).

“The danger lies in how there is no way to sterilise adverse effects such as rising interest rates. Norway successfully avoided this scenario despite continued oil production in the North Sea by channelling proceeds into a SWF,” he says.

Proceeds from SWFs can be used to fund better health services for the ageing population, natural disaster-proofing, Indigenous Australian initiatives and offsetting the new carbon tax.


Latest News

2017 BRISBANE TOP COMPANIES REVEALED

WHILE Queensland is regarded as an economy in transition with the winding down of the mining boom, the 2017 top 50...

2017 BRISBANE TOP COMPANIES 1-10

FROM insurance and banking to travel, gambling, retail, property and pizza, these "heavyweights" have ha...

2017 BRISBANE TOP COMPANIES 11-20

RETAIL, property, an airline, cars, real estate, software services, energy, agriculture, veterinary services bathr...

2017 BRISBANE TOP COMPANIES 21-30

JEWELLERS Michael Hill International listed in 2016 with a half-billion dollar market capitalisation and a new CEO...

Related News

FURNITURE DISRUPTOR SET TO SHARE HIS ONE OF A KIND BUSINESS MODEL

IT'S no secret that Australians love homemaking. Their ceaseless quest to create the perfect place to call hom...

WEEDING OUT THE ASX'S BURGEONING CANNABIS TREND: 8 COMPANIES TO WATCH

A NICHE is budding on the ASX in the form of medical cannabis, an industry which has been on the country's rad...

FRESH CLASS ACTION TO REVEAL ANOTHER SIDE OF SLATER AND GORDON DOWNFALL

ACA LAWYERS has issued a formal letter of demand to Andrew Grech (pictured), managing director of Slater and Gordo...

STARSHIPS WERE MEANT TO DELIVER DOMINO'S PIZZA

NICKI Minaj may have been off the mark when she declared 'starships were meant to fly'. However, she m...

BOOK YOUR FUNCTION SPACE HERE

 

 

 

Contact us

Email News Update Sign Up Contact Details
Subscriptions

PO Box 2087
Brisbane QLD 4001

LoginTell a FriendSign Up to Newsletter