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Monday, June 27, 2005

BIS: US Urged to Act First on Global Imbalances

by Calculated Risk on 6/27/2005 10:44:00 PM

From the Financial Times, the Bank for International Settlements (BIS) warned Monday that "growing domestic and international debt has created the conditions for global economic and financial crises".

UPDATE: Macroblog links to the BIS report with key excerpts.

The Basel-based organisation's annual report said no one could predict if and when such international economic imbalances would unravel but "time might well be running out".
The BIS urged the US to act first:
"Given the size of the [US] government deficit, the obvious first step would be to cut expenditures and raise taxes"...

Without a smaller budget deficit, lower private sector consumption and higher savings, there was little likelihood of stabilising the ballooning US current account deficit. The ever widening deficit “could eventually lead to a disorderly decline of the dollar, associated turmoil in other financial markets, and even recession."
The report then turned pessimistic.
...the BIS report questioned the Bush administration's willingness to impose the required policies to back up its deficit reduction ambition ...

"If what needs to be done to resolve external imbalances is reasonably clear, it also seems clear that much of it is simply not going to happen in the near term."
"Time is running out" and no action will be taken "in the near term". How sad.