Economists speaking at the Insured Retirement Institute (IRI) annual conference said that America’s economy and the global economy are headed for a “fundamental paradigm shift” as the two stabilize. “Rich countries are running deficits…and liabilities,” explained CEO of PIMCO Mohammed El-Erian, while “GDP in developing nations tend to stay in positive territory during periods of turbulence.” He added that high unemployment numbers in the United States are not really that unusual, but that they have remained so high is a cause for concern. El-Erian said that the entire economy will need a “’Sputnik’ moment to jolt [it] out of its inertia,” and suggested that not much will change until something happens to anger constituents enough to demand that policymakers do something.
Another economist, Fareed Zakaria, foreign-policy expert and editor-at-large of Time magazine, said that pretty much all of the current administration’s attempts to repair and restore the economy are “misguided.” He explained that “businesses are not hiring for a very simple reason…If there were consumer demand you would see businesses hire”. David Kelley, JPMorgan Fund’s managing director, agreed, saying that “buyers aren’t buying” and that is why America’s economy has a problem.
Interestingly, the economists did not necessarily think that the housing slow-down was a primary symptom of the economy’s problems. Instead, they attributed it, at least in part, to a “healthy economy phenomenon” in which Americans are “getting their personal finances under control.” However, until lending loosens up, that healthy move will not ultimately benefit the economy, said Kelly. Washington’s actions indicate that banks should stay strict and rein in risk, he said, adding that “it is making this recovery much slower than it needs to be” and “if you don’t take some risk, you’re not doing anyone any good.”
Kelly also believes that the Federal Reserve’s commitment to keep interest rates low until 2013 is encouraging businesses to put off important investment decisions since they know that lending rates will be good for a while. “To help us,” he said, “they need to talk about raising rates.”
Do you agree that our economy will never be the same?
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