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World Finance Leaders Are Jumping In With Both Feet To Reverse the Global Crisis

By: Steve Johnson

10/13/2008 - 14 Comments

World finance leaders attending the G7 finance minister’s meeting in Washington this weekend agreed that central banks need to take more action.

Last week six central banks lowered their bank lending by 50 points in a coordinated effort to help unfreeze the credit markets. Now congress in talking about another economic stimulus plan to increase food stamps, extend unemployment benefits and possibly include tax rebates or tax cuts.

Britain has just decided to launch its biggest retail bank rescue with four of the largest banks, HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays, after asking for a combined 35 billion pound ($60.5 billion) lifeline.

Meanwhile, the World Bank pledged to protect poor and vulnerable countries and nations with rapidly developing economies. Mexican Finance Minister Agustin Carstens, who heads the bank's policy-setting committee, said the bank and the IMF will draw on the full range of their resources to help these countries. (the only problem is they don’t have much money to begin with).

European leaders met Sunday to discuss temporarily guarantee bank refinancing to ease the credit crunch. French President Nicolas Sarkozy said it would apply in 15 countries through the end of 2009.

Paulson is working on a plan to allow part of the recent $700 billion bailout Bush signed Oct. 3 to be used to take ownership stakes in banks. (so they can force the banks to lend money to businesses and consumers) The plan already has wide support on Capitol Hill, although Democrats pressed for quicker action in spelling out specifics. This plan to nationalize banks will have irreversible and detrimental effects on our capitalistic banking system.

The World Will Shake It Off

After the panic subsides, I think the world will shake off the losses which stem from the US market meltdown.  At the center of the global economic crisis in the fact that America can no longer borrow and spend the savings of the rest of the world.  The party is over, as Peter Schiff said last Friday.

As painful as it will be, the best course of action at this point is to turn and face the pending recession head on.  It’s time to start living within our means and government intervention is out of control. The government is too big to help. The best thing they could do for the economy is downsize. 

The next economic stimulus plan that congress puts together should include the elimination of several government programs.  The current course of action is unsustainable, just as the borrow and spend economy of the last decade was unsustainable. The government doesn’t want the party to stop. They think that if they just push more money into the system, then consumers will return to their spending habits and housing prices will move back up, but it’s not going to work this time.  Instead, we are on the path to hyperinflation by 2010

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