Wednesday, March 25, 2009

Yes, But He Has Good Intentions

. Wednesday, March 25, 2009

Czech Premier Mirek Topolanek does not like the $2tn effort by the Obama administration to stimulate the U.S. economy. He does not like it one bit:

BRUSSELS -- The prime minister of the Czech Republic slammed President Barack Obama's plan to spend nearly $2 trillion to push the U.S. economy out of recession as "the road to hell" that European Union governments must avoid.

The blunt comments by Mirek Topolanek to the European Parliament on Wednesday highlighted simmering European differences with Washington over spending plans, ahead of a key summit next week on fixing the world economy. ...

"All of these steps, these combinations and permanency is the road to hell," Mr. Topolanek said. "We need to read the history books and the lessons of history and the biggest success of the [EU] is the refusal to go this way."

"Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the liquidity of the global financial market," Mr. Topolanek said.

The last part is key: since all of the U.S. demand-side spending is funded by deficits, the result is reduced liquidity of dollars for the managing of international accounts. Since the dollar is still (for now) the world's reserve currency, this puts pressure on other central banks to manage their balance of payments accounts more carefully, at a time when many of them would prefer more flexibility to pursue counter-cyclical policies.

I hope to have more to say about this, and how it relates to America's de facto as role as organizer/stabilizer of the international macroeconomy, in the near future.


Yes, But He Has Good Intentions




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