US needs another "locomotive"

[Chris Burford <cburford@xxxxxxxxxx>]

International Herald Tribune Saturday 

     U.S. to Urge Economic Push by G-7 
     Europeans and Japanese Will Be Asked to Do
More
     

> The United States, Mr. O'Neill said at a news
> conference Thursday, has done its part to spur an economic rebound by
> reducing interest rates and cutting taxes. He suggested that the United
> States would like to see Europe and Japan do more to live up to their
> roles as "locomotives" for world growth. 
>
> Mr. O'Neill said the U.S. economy was in the middle of a correction set
> off by a "rate of expansion and acceleration in consumer spending in
> the early part of the last year" that could not be
> sustained.


But on Monday! 

>  Europeans at G-7 Talks See No
> Quick Recovery


> ROME Treasury Secretary Paul O'Neill said over
> the weekend that the United States was poised for a significant economic
> upturn later this year that should help revive the world economy,
> provided that Europe and Japan do their share to stave off
> recession.
>
> At a meeting here of finance ministers from the world's Group of Seven
> leading industrial democracies, Mr. O'Neill said the United States,
> Europe and Japan must better coordinate policies to restore economic
> momentum at a time when all three regions have been suffering a
> downturn.
>
> "We all agreed that growth in each of our economies is crucial to
> prosperity around the world," Mr. O'Neill said Saturday after five
> hours of discussion with his peers.
>
> "We in the United States have taken strong measures in both fiscal
> and monetary policy to return our economy to a higher growth path,"
> he said. "And I continue to believe that the prospects for long-term
> global prosperity are better now than at any time in our
> history."
>
>
> Several European finance ministers, however, said they did not share
> O'Neill's optimism. The chancellor of the Exchequer, Gordon Brown, said
> the global downturn had proved "more severe than expected" and
> that hopes for an early recovery might be premature, given the bleak
> forecasts for much of Europe and Japan.
>
> Afterward, analysts remained skeptical about the prospects for any
> concerted, fresh policy action by Europe to contribute to a turnaround in
> global economic prospects.
>
> The U.S. and European ministers openly disagreed before the meeting over
> who should be responsible for acting as the "locomotive" for
> the rebound. Frustration at the inability to directly influence
> persistently high energy prices was also evident.
>
> As a result, little in what was said is likely to calm the nerves of
> increasingly volatile international financial markets - always mindful of
> the history of G-7 disharmony and investor angst. A public U.S.-Europe
> dispute about interest rate policy in 1987 has frequently been cited as a
> trigger for the stock market crash that year.


Further substantial evidence of squabbling follows, beside an article
expressing anxiety that the strong dollar limits the possibilities of a
US rebound.

Clearly the US is no longer confident that it can be the sole locomotive
and sole beneficiary of global reflation. It and its "allies"
are arguing about how to distribute global deficit financing in the form
of lower credit rates, among themselves.

The idea that they should stimulate the world economy by facilitating
easier credit for impoverished developing countries would not be
conceivable. That would presuppose that in relative terms the burden of
destroying old capital would fall disproportionately on themselves.

So they will struggle on in stagnation, and and disunity, risking another
global financial crash.

Chris Burford

London