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World Economy Headed Towards Recession

Blog Dec 14, 2012

The governor of the Bank of Israel, Stanley Fischer, has declared that the world economy is clearly headed towards a Recession, which is literally breathing down our necks! Fischer also supports the increases in quantitative easing by the Federal Reserve, stating that this move has succeeded in strengthening the credibility of its policy!

In a recent interview given in Tokyo, which will be aired on Bloomberg Television, Fischer explained that although significant progress has been made in improving the global economy, the impact hasn’t exactly borne fruit. He also emphasized that by not setting final end dates or capping the total amount for its third program, the Fed is actually easing out worries pertaining to the fact that it would run out of tools prior to achieving its targets.

Fischer’s viewpoint on the global growth forecasts have added up to the concerns already discussed at the annual meeting of the IMF. The IMF cut its global growth forecasts on October 9, coupled with warnings of further weakness unless America and Europe resolve the threats that keep staring their economy in the face. As the crisis in Europe continues to deepen, the reduced demand and fiscal tightening prevailing in wealthy nations continues to trouble the emerging economies, including China and Brazil.

Fischer, who is now 69 age and has served as the IMF’s second in command from 1994 to 2001 and as Thesis Manager for Ben S Bernanke, Chairman of the Fed, stated emphatically, that we are in fact “awfully close” to a recession! Matters, according to him, are pretty slow at the moment, with Europe technically in a recession already and America predicting a growth rate below 2% for the coming months!

However, Fischer declined to comment on the outlook of the interest rates in Israel. The last cut to the benchmark rate was in June. He also stated that the early election call issued by Israeli Prime Minister Benjamin Netanyahu is a good response to the budget impasse and is likely to prove beneficial for the country’s economy. The prime minister established his stand against an overtly expansionary budget that might have taken effect if the current coalition remained in power.

Fischer also stated that euro bonds are likely to be a mistake. There is nothing in the system that would compel countries to keep tabs on their budgets. According to him, if everybody is allowed to sell euro bonds, market discipline cannot be exercised. He stated that the markets have to adjudge the credit of specific companies and force payments through higher borrowing costs in a recession.

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