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...world's most influential people in the 2009 TIME...
During the dark days of the global credit crunch a year ago, policymakers around the world had a generally easy time coordinating decisions. As asset prices tanked, lending dried up and growth shriveled, governments and central banks were forced to take similar steps - pump up fiscal spending and slash interest rates to support growth and unfreeze financial markets. Now, as an economic recovery emerges, governments are hoping for another coordinated effort to exit from their massive stimulus plans, including near-zero interest rates. That intention was clearly laid out during the September G-20 summit in Pittsburgh, Pa. The leaders...
...what sounds so simple on paper will be far more complicated in the real world of economic policymaking. The problem is that the upturn isn't as synchronized as the downturn. Countries are emerging from recession at different speeds, with each facing its own special mix of inflationary pressures and unemployment - both of which affect decisions for monetary and fiscal policy. "We won't get the kind of coordinated response that is the rhetoric of the G-20," says Paul De Grauwe, professor of economics at the University of Leuven in Belgium. "Each country is going to look...
...haphazard exit from stimulus measures, with countries going their separate ways, could pose its own set of problems. In this era of globalization what one government does in one corner of the world can have a knock-off effect on economies in another corner. For example, countries that raise interest rates ahead of others could end up attracting money from foreign investors seeking a higher return, potentially draining funds away from economies that are still badly in need of investment. Or if too many governments turn off the stimulus tap too quickly, global demand could fall sharply. "An unruly rush...
...However, Neumann and other economists question if Asia will take such action, even if it does prove necessary. By raising rates ahead of the rest of the world, Asia could attract capital flows and put pressure on its currencies to appreciate. Stronger currencies would make Asian exports more expensive - a consequence policymakers in the region's trade-dependent economies might wish to avoid. "Unless you are really forced to do something independent of the Federal Reserve, you are probably not going to go that route," says Duncan Wooldridge, an economist at UBS in Hong Kong...