Global Financial Reform Needed to Prevent Future Crisis
by Hiland Doolittle
President of the Federal Reserve Bank of New York, William Dudley, stressed the need for international financial reform and strict regulatory revisions to protect world economies from a repeat of the worst financial crises in 70 years.
Speaking at the Reserve Bank of Australia’s 50th Anniversary Symposium, Dudley focused on the international financial community’s need to “harmonize” regulatory reform to prevent a repeat of the global recession.
Yet, the United States is not carrying the ball. Policymakers, The White House and Congress seem unable or unwilling to address the financial reform with meaningful and comprehensive legislation.
On Sunday, former Treasury Secretary Hank Paulson told NBC’s Meet The Press that lawmakers historically resisted financial reform. In posing the growing national debt as “the most serious long-term challenge,” Paulson echoed Dudley’s calls for reform.
Meanwhile, former Federal Reserve Chairman, Alan Greenspan, expressed concern about the country’s prospects for continued borrowing. Greenspan emphasized that traditionally when great economic powers continually faced fiscal problems, they were no longer great powers. Many analysts have expressed concern that the U.S. financial dependency on China threatens the country’s stability on several fronts.
Greenspan explained his major concern, “throughout history we have always maintained a capital cushion, a cushion between our borrowing capacity on the one hand and the level of debt on the other. That is beginning to shrink.”
The U.S. finds itself in the unenviable position of being reliant on borrowed money to fund normal business operations. Treasury bonds and notes are being offered at record levels to fund the federal deficit, which is predicted to top $1.6 trillion in 2011.
Geithner Says Worst Has Passed
As Paulson spoke on Sunday, current Treasury Secretary Timothy Geithner appeared on “This Week.” The Secretary said the economy is in far better shape than a year ago and specifically pointed to the strong 5.7% increase in real gross domestic product in the 4th quarter 2009. This leading indicator illustrates that the risk of the economy sliding into another recession is lower than at any time in the past year. Geithner conceded that the recovery will b e a long and slow process.
Just last week, Moody’s Credit Agency warned that in the wake of low U.S. economic growth and heavy reliance on stimulus funding to boost activity, the country’s Triple A credit rating was in jeopardy. Geithner was firm in countering that concern. The Secretary repeatedly pointed to the strong fourth quarter as a sign that the worst has passed.
Geithner cited the 9.7% unemployment rate as a step in the right direction. He also supported the Obama initiatives to fund new projects to stimulate the economy.
The fourth quarter increase in GDP marked the second consecutive growth pattern. The 4th quarter increase primarily reflected gains in private inventory investment, exports and in personal consumption.
2009 Real GDP decreased 2.4% from 2008 levels, when real gross domestic product grew 0.4%. The 2009 decrease was the result of negative contributions from non-residential fixed investments, exports, private inventory investment, residential fixed investment and personal consumption.
January Retail Sales Up
Forecasts project an encouraging 0.3% increase in retail sales in January. This would follow a disappointing fall of 0.2% in December. The median increase, excluding sales, is projected to be 0.5%. The Toyota controversy is weighing down expected auto sales.
In non-recessionary times, the U.S. consumer accounts for two-thirds of the national economic activity. With factory employment rising for the first time in three years in January and with the average workweek turning slightly upwards, there is hope on the employment front.
At issue is who is sparking the recovery. The government is looking for the consumer to come back to the table before initiating an exit strategy.
Tags: dudley, Federal Reserve, greenspan, recession
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
