Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

The Global Economy’s Inevitable Hard Landing

The global liquidity and credit crunch that started last August has become more severe. A global economic slowdown is now inevitable, because monetary policy cannot address the core problems that underlie the current crisis.

In recent weeks, the global liquidity and credit crunch that started last August has become more severe. This is easy to show: in the United States, the euro zone, and the United Kingdom, spreads between Libor interest rates (at which banks lend to each other) and central bank interest rates – as well as government bonds – are extremely high, and have grown since the crisis began. This signals risk aversion and mistrust of counterparties.

To be sure, major central banks have injected dozens of billions of dollars of liquidity into the commercial banking sector, and the US Federal Reserve, the Bank of England, and the Bank of Canada have lowered their interest rates. But worsening financial conditions prove that this policy response has failed miserably.

So it is no surprise that central banks have become increasingly desperate in the face of the most severe crisis since the advent of financial globalization. The recent announcement of coordinated liquidity injections by the Fed and four other major central banks is, to be blunt, too little too late.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/FxEHlVO;
  1. op_dervis1_Mikhail SvetlovGetty Images_PutinXiJinpingshakehands Mikhail Svetlov/Getty Images

    Cronies Everywhere

    Kemal Derviş

    Three recent books demonstrate that there are as many differences between crony-capitalist systems as there are similarities. And while deep-seated corruption is usually associated with autocracies like modern-day Russia, democracies have no reason to assume that they are immune.

    7