The American economic crisis was transmitted to the world through global financial markets, and many economies of different countries has been largely influenced. Resolving this crisis, according to Linda Yueh, will require rebalancing the global economy.
As China has $2 trillion in foreign exchange reserve, it has become a significant source of global savings. Even though the econmic crisis has slowed down China's economic growth, it is definately in a position to help with the credit crunch in the West as well as serve as an engine of growth.
Western goverments must borrow to help with the crisis, as increasing taxes is not advisible in a downturn. Borrowing large funds would mean an increas in future taxes and interest rates (contractionary policy), which could hinder econmic growth. Instead of borrowing from China and other countries, it would be much more helpful if the soverign wealth funds of these countries invest directly in western markets.
1 comment:
I agree that in order to resolve the American economic crisis rebalancing the global economy is required. But I don't think it is an easy task to complete. As of the moment, most of the world's leading economies are in bad shape as well, China's help might not be sufficient to give a positive result to raise up consumer's confidence on the global market.
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