The argument goes like this (and worse still, is already being anticipated as witness the fall in the dollar against the DM on Friday) -
With Japan in the economic doldrums, the world is relying on the US and Europe, which make up nearly 60% of world output, as the engines of growth. (Thank god for superman)
However, sadly, economic growth in both areas could be more vulnerable than is commonly supposed. A further spread of contagion from Latin America or Eastern Europe could be a blow. As would a stock market crash in the USA where many individuals rely on stock market wealth for their savings.
However given the correct policy response this could be avoided. Both the US Fed and European central banks must be prepared to take the risk of cutting interest rates to accommodate a worsening international crisis.
The US must also be prepared to accept that, as consumer of last resort it will suffer a deteriorating trade balance for some time to come.
.... So not only is the US and Western Europe to get all the benefit of lower commodity prices, but their economies are to be stimulated by a reduction of interest rates, and magnanimously in the case of the US they will gratefully receive goods and services from other countries worth over $10 billion free, to help stimulate ... the world economy.
With another quick summary of the dire situation, the FT editorial says unctuously "If the worst comes to pass, it may be only the west's central banks that can keep the world growing."
I have never before noticed such an outrageous statement from this civilised paper. My indignation is fuelled however by the knowledge that the revolutionary left, thinks all global reforms are necessarily reformist, and are prepared to leave the field to be stiched up again by international finance capital, at this of all times.
If the world economy need restimulating, THIS is the time to introduce the Tobin tax and spend it all on Africa and the global environment.
Chris Burford