When the International Olympic Committee (IOC) awarded the 2016 Summer games to Brazil’s Rio de Janeiro, it left many here in America looking for reasons why. When viewed through an objective lens, it’s easy to see why Rio would be a wonderful host city, with its beautiful beaches and colorful culture. In addition, Forbes magazine named Rio the world’s happiest city for 2009.
Every year, leaders from industry, government and civil society meet in Davos, Switzerland for the World Economic Forum’s annual meeting. This year’s meeting was held from January 29 through February 1 with a central theme, “Shaping the Post-Crisis World.” The objective was to ensure that we look at the world in a holistic, systemic way going forward.
As the Year of the Ox is about to begin (January 26), I hope the anxiety and fear from the Year of the Rat will give way and in its place confidence will re-emerge. In our complex economic world, theories were tested; experiments were made. Some of them failed; some were derailed; some still look for validation. We are traveling in uncharted waters as the magnitude of deleveraging is unprecedented. To avoid an outright liquidity trap now and to protect the economy’s long-term growth viability after a huge run-up in public debt, a new course has to be mapped based on integrated political
There has been a lot of discussion in the media about Ponzi schemes. In fact, some economists have been debating whether we were facing a system-wide Ponzi scheme as financial imbalances that rely on new investors (including those overseas) could not last forever. A scheme needs a schemer, but this, of course, is not the case for the financial system at a macro level. If we look at practices at a micro level, including the situation in the housing market, fraudulent practices and schemers did exist.
At this juncture in time, the economy faces two “systemic” near-term problems. First, the financial side the economy is very close to a “liquidity trap” – a situation in which conventional monetary policy loses all traction. Second, the real side the economy is in what Keynes called a “paradox of thrift” – when the entire private sector (businesses and households) tries to save more at the same time, it creates a downward spiral in business activities.
