Blog 5: IMF Warns Global Fiscal Recession May Return

Christine Lagarde, the Managing Director at the International Monetary Fund, recently warned  in an address at the Peterson Institute for International Economics that there may be a looming downfall in the global economy. The debt crisis in Europe is what many economists are concerned with currently, with everyone paying close attention to Germany. Of all the euro zone nations, Germany is considered to have the biggest economy in Europe, which leads many people to wonder if they too will experience economic downturn. Germany's IFO Business Climate Index for this month was recorded at 101.4, making September the fifth consecutive month with no improvement. The numbers aren't just dropping in Germany, the IMF is planning to cut its forecast for global growth next month even after previously being cut down to 3.5% in July. The Director also explains that some countries have been showing signs of economic slowdown, especially in China and Brazil. Lagarde also mentioned the United States' upcoming budget and tax cuts, as well as the plans to reduce government spending. This article describes the U.S.'s economic path as headed for a "fiscal cliff", which means if important political decisions aren't specified and established quickly enough we might end up falling off the cliff and running ourselves into the ground. Another topic that was brought up was the use of central banking policies the Bank of Japan and the Federal Reserve have announced plans to implement rounds of quantitative easing, or simply feeding money into the economy. The European Central Bank (ECB) has managed to sufficiently keep the euro flowing throughout the region, and has approved plans that include broadening the banking oversight and financing failing nations. The president of the ECB, Mario Draghi, has offered to buy government bonds from indebted countries like Greece and Italy in an attempt to alleviate the concerns over the crisis. Lagarde's main focus point was on the political risks attributed to the recovery of the economy, she states, "political bickering and delays in decision making have made matters worse." It is up to the heads of state to heed Lagarde's warning and  prevent a worldwide failure in the economy.
http://www.washingtonpost.com/business/economy/imf-chief-lagarde-warns-of-renewed-global-downturn/2012/09/24/e266f89c-0655-11e2-a10c-fa5a255a9258_story.html