The World Bank considers how the cost reduction will positively affect growth in the long term. Global Economic Prospects- Summer 2010. Their models somehow gave birth to the idea of, that accelerating the rate of cuts in government spending will improve the prospects for emerging economies by 2012 year, read – at once. Where heresy comes from is not difficult to guess. The guys counted, that spending cuts will calm the markets – hence the reduction of all kinds of spreads there, and off we go. If you remember, that people far from the markets never understand their behavior and given how the IMF has tried to calm the markets in Latin America… Think, that everyone understands how unrealistic their models are. With all my real respect and respect.
ECB issued . The brightest moment, this is the part about the fiscal situation. In the analysis of the pros / cons of cost cutting, the comrades cite the example of Finland, Belgium and Ireland 90s. There is a problem. The world economy is not in the 90s, cost cuts will take place at a new level (not individual countries, and region / regions) and in completely different growth rates of the global economy. It's just such a comparison in itself (I understand that you need to write about something) raises further doubts about the performance of the ECB. More and more terrified.
On the other hand. Periods of economic growth and stability have not traditionally been used to address structural problems. As Paulson wrote, in Washington something can only be done in a crisis. Therefore, it is better even now, what else in the next n-years. Yes, this is not the smartest move, a step to coerce the markets. The problem is, that inadequate people respond to adequate markets, who are unlikely to be able to follow the thin line of maintaining the minimum, but growth.
The practical conclusion is, that the consensus is too optimistic in a period of one to several years. As well as being overly pessimistic about the long-term problems of budget deficits and public debt (especially in the USA). This means, what's the raw material – this is not the best asset for the coming years. Promotions will be better (with competent selection or good active management). In longran, years from 5 for example stocks are cheap.
This is not a calculation, logical estimates only.
