Dangerous times indeedBen Bernanke, chairman of the U.S. Federal Reserve, downgraded forecasts for the U.S. economy this year and next, retracting his earlier view that the slowdown was temporary. The slower pace of growth is persisting, he told a news conference on Wednesday, adding some of the head winds - problems in the financial sector and housing market - “may be stronger or more persistent than we thought.”
The Fed now projects the U.S. gross domestic product to grow from 2.7 percent to 2.9 percent this year, compared with estimates of 3.3 percent two months back and almost 4 percent at the beginning of the year. Unemployment in May went back above 9 percent and consumer prices rose 3.6 percent.
The world’s largest economy is getting hammered by weak growth, high jobless rate and inflation. There are many economy watchers who believe the U.S. economy has entered a soft patch, or a temporary slowdown common before reacceleration, but skeptics view the indicators as looming warnings of a double dip.
The problem is that the U.S. is running out of fiscal and monetary resources to reverse the head winds. Interest rates are kept at ultra-low levels and further quantitative easing may be too risky given the mounting inflationary pressure. The Fed confirmed that it will end the buyback program of $600 billion worth Treasury bonds to boost money supply at the end of June as planned and gave no sign of a third quantitative easing. The other option - budget increases - is also out of the question given the hawkish Republican stance on fiscal health. A recent Congressional Budget Office report predicted U.S. debt held by the public would exceed GDP by 2021 and its percentage of GDP may approach 190 percent in 2035, reinforcing Republican rationale for cut in fiscal spending. Some even are floating the idea of selling public entities like national parks to raise funds for investment and hiring.
When the U.S. is stuck in the mire, other countries of size should come to assist. But there are few that can afford to do so.
The worsening outlook for the global economy casts a shadow over the Korean economy, which relies on external markets for growth. But the country is inundated with reckless populist pledges ahead of elections next year that will threaten our fiscal health. Dangerous times call for alertness. If politicians have their eyes only on votes, the country’s future is bleak. They should take a look at the international news for a change and readjust their focus.