The Great Debate

The latest International Monetary Fund meeting ended with emerging market powers getting a pledge from the organisation for stronger and "more even-handed" scrutiny of what is going on in large advanced economies.

As Reuters correspondents Lesley Wroughton and Emily Kaiser report here, the decision is a response to long-running frustrations among emerging economies, which reckon the Fund has  not been tough enough on its biggest shareholders, led by the United States.

The move reflects a number of things. First, it shows the growing clout of emerging economies within international institutions. The G-20, for example, is arguably now more influential than the old , richer G7. Secondly, it graphically underlines the current world-turned-upside-down state of the global economy, in which profligate rich economies are struggling to keep above water while supposedly poorer and less-developed ones enjoy solid growth and relatively stable finances. This graph makes the point:

One question  that has been raised, meanwhile, is whether the IMF is capable of taking rich countries -- its primary paymasters -- to task.  A comment from a craigbhill on the Reuters story encapsulates the issue:

This is like the bankers to the Mafia being politely asked to "give scrutiny" to the Mafia.

It may be about as fun as having a tooth pulled, but cutting very high levels of debt in an economy is more of a process than a short, sharp event.

That means that for economies like that of the United States, which has private debt equal to 268 percent of gross domestic product, the outlook is for a very long period of subdued growth and one in which there is no assurance that the tools of economic management, traditional or not, will be effective.

The Federal Reserve released its Flow of Funds report last week, detailing the state of the country’s various balance sheets and the news was good, in its own way, but not encouraging.

It is beginning to look like financial markets cannot handle more than three risks. First we have, as MacroScope reported earlier,  Barclays Wealth worrying about U.S. consumers, euro zone debt and Asian overheating.

Now comes Jim O'Neill and his economic team at Goldman Sachs, with three slightly different notions about risks in the second half, this time in the form of questions. To whit:

1) How deep will the U.S. economic slowdown be and what will  the policy response be? (That's two questions, actually, but let's not nitpick).

-- Mark Kobayashi-Hillary is the author of several books, including ‘Who Moved my Job?’ and ‘Global Services: Moving to a Level Playing Field’. The opinions expressed are his own --

After thirteen years, it’s all over. The New Labour project is dead. Or is it? Tony Blair brought British politics to the centre-ground and ensured that a single party could support free-market economic policies as well as social justice.

And that’s what most people want today, a government that can help the citizen without hindering the economy through the dogma of dated ideology. The old notion of socialists waging war on small-government-right-wingers feels somehow quaint. Clearly Tony Blair knew that David Cameron would be his successor in the New Labour project, but nobody told Gordon Brown.