Wednesday, September 21, 2011

IMF: World economy enters 'dangerous new phase'

The world economy is entering a "dangerous new phase," for economic growth. The International Monetary Fund has lowered its expectations for economic growth for the United States from 2.5 percent to 1.5 percent and Europe from 2.7 percent to 1.8 percent.

Olivier Blanchard, Chief Economist for IMF stated, "The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks."

The downgrade for Europe has sparked because of the fear that the countries debt crisis will continue to get worse, furthering destabilizing the nation. Banks in Europe are holding on to their cash and reducing the amount of lending.

The high stock market drops in the United States are hitting consumers and businesses belief in a strengthening economy causing a reduction in spending. This is causing investors to transfer money from stocks and move it into safer investments, such as Treasury. The U.S economy is also taking blows from high gas prices and disruptions from the Japan crisis. This slow economy is causing U.S. employers to stall the creation of new jobs while increasing wages for management. Homeowners in the U.S. are experiencing a drop in property values resulting in owing more on mortgages then homes are actually worth.  The outlook for the U.S. economy making a fast recovery is not good.

President Obama's plan to cut taxes and increase spending on infrastructure is highly needed for short-term stimulus. However, a long term plan for recovery is needed to reduce the deficit. There is a fine balance in economic growth. If budget cuts are too fast then they will kill economic growth. If budget cuts are too slow then they will kill creditably. Obama's tax increases and job proposal are facing strong opposition from the Republican party. Republicans strongly oppose tax increases and have little faith in Obama's plans.

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