Subbarao fears fiscal deficit to fuel next crisis


The Reserve Bank of India (RBI) governor, Duvvuri Subbarao, expressed fear that the next financial debacle could stem from a currency crisis or from the way the government handles its ‘stimulus exit’. Speaking at the first International Research Conference organised by RBI here on Saturday, Subbarao said,

“I worry that in resolving this financial crisis, perhaps we are sowing the seeds of the next crisis. Next crisis could be a currency or a fiscal crisis.” The central banker, however, denied that RBI would back out from its commitment to full convertibility of rupee but would impart flexibility to its pre-determined course in the light of the recent global economic developments.

Participating in a panel discussion, the RBI governor said the developed economies may fail to wind down their borrowings, leading to cyclical deficits morphing into ‘structural fiscal deficits’, affecting the system as a whole. In the wake of global credit crisis, following the US sub-prime crisis in 2008, many governments and central banks pumped in huge funds and resorted to low-interest-rate monetary policies, for boosting their sagging economies. These have resulted in bloating of fiscal deficits. (more…)

Kiss That V-Shaped Recovery Good-Bye: The U.S. "Worse Than Greece," Says Economist

There’s been many letters and symbols used over the last year to describe the shape of the U.S. economic recovery.  There’s the strong V-shaped recovery; the square root shaped recovery to connote a strong recovery followed by a period of flat to no growth; and the W-shaped recovery favored by those believing in a double dip recession.

Tech Ticker guest Michael Pento has a new twist on the discussion. Pento, senior market strategist with Delta Global Advisors believes this is a tee-pee shaped recovery with the top of that tee-pee having already formed in the fourth quarter.

Pento is negative on America’s near term economic prospects for three main reasons:  too little bank lending, too few jobs and too much public and private debt. “I’ve never seen a v-shaped recovery occur when commercial bank lending was down 7% year over year.  So, small business are not getting loans to create capital goods and to expand and hire individuals,” he observes.

Exacerbating the problems at home, is what he describes, as a weak economy abroad.  With China looking to clamp down on growth, the EuroZone struggling with its own debt problems, Pento asks, “Where is the growth going to come from in demand from overseas?

When he says “demand” he’s referring not only to products and services but also to our growing debt burden.  As the price of servicing our deficit grows, when the Federal Reserve tightens monetary policy, Pento is confident others will realize what he already does: the situation in the U.S. is “worse than Greece.”

The way he sees it, there’s a strong potential for a bond and dollar crisis when China starts selling Treasuries.  “Tell me which shape recovery that will yield for the United States?”

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