G20 and Global Economy – Fiscal Policy

October 9, 2011

By Padmini Arhant

Amid weak global economy largely contributed to United States and European sluggish growth compounded with other economic woes like high unemployment, inflation and,

National budget confined to austerity and controversial tax hikes or tax-cuts is a phenomenal challenge confronting the industrialized and developing nations.

Beginning with industrialized economies – the economic stimulus since recession onset was aimed at growth surge and job creation, facilitating liquidity to overcome credit crunch following financial markets reaction to derivatives discrepancies in the deregulated environment.

The steps involved Capital supply to salvage targeted high-end manufacturing industry from bankruptcy and banks bailouts in eliminating toxic assets from the balance sheets respectively.

Among the industrialized groups – the two major economies viz. the United States and Japan share mutual setbacks from overheating of the economy in two familiar areas – the stocks and housing market.

Both nations have struggled to jumpstart the economy with steady growth exacerbated by global recession and sovereign debt.

Speculations on European national debt and potential credit default overall impact on euro as the European Union currency and Euro Zone status in the globalized economy foment market volatility.

Economic forecasts and projections weighed in objectivity could avoid unnecessary market turbulence.

Japan is also burdened with U.S debt as the second largest creditor behind China – the primary creditor and the second largest economy.

In order to address various economic problems and avert possible Double-dip recession,

It is necessary to review public policies and economic tools that are available for short term and long-term objectives.

Fiscal Policy (Balancing the Budget), Monetary Policy (Controlling inflation and liquidity), Trade Policy (Growth and Investment),

Additionally Revenue and Spending for efficient government functionality and deficit reduction could broaden perspectives on this critical matter.

Fiscal Policy – Comprising government expenditure and taxation, non-tax revenue from government owned investments and utilizing government assets such as bonds and other suitable financial instruments for borrowing to meet government obligations.

United States and Europe focus is on budget approval with the dilemma on spending cuts along with taxation being contentious leading to opposition’s government shut down ultimatums causing political gridlock in the U.S,

Notwithstanding justified public frustration over fund slashing for education, health care, pension plans and most importantly lack of jobs triggering riots in London, Paris, Athens, Madrid and Lisbon…calling for government actions to deteriorating economic conditions.

United States citizens protest against Wall Street conduct premised on greed driven strategies responsible for the status quo is slighted with –

White House clarification on the issue as –

“Wall Street ill-practices are not necessarily illegal.”

The sub-prime mortgage activities having deprived more than million homeowners ownership and economies facing insolvency in the hedge fund debacle,

Financial institutions’ exorbitant fee on banking transactions and consensus to stranglehold consumers despite banking industry dependency upon them is a kamikaze effort given the flawed tradition proved detrimental to global economy.

Corporations and finance industry consumer-friendly approach would not only guarantee significant consumer base but also enhance good will – a valuable asset in the competitive setting.

Fiscal policy effectiveness is largely related to both spending and revenue trends with immediate requirement on tax reform.

They are summarized as follows:

Closing loopholes used in tax evasion,

Tracking funds in offshore tax havens for individuals and corporations.

Mandatory disclosure of financial assets for high profile and rank and file public figures on taxpayers funded income viz. legislators, Parliamentarians, Cabinet secretaries, Political party leaderships regardless of hierarchy, kickbacks donors and recipients in the private and public domain.

Easing tax burden on the middle class,

Tax exemption for the lower income groups and,

Tax structure readjustment – the bipartisan Super committee appointed for fiscal management in the United States could enforce repealing the Bush tax cuts to the wealthiest passed in 2010 and implementing the popular Buffet Rule in 2011 through legislation.

In a broader sense, consumption tax could be marginally raised with the exception of essential food items and reallocated to health hazard products as well as luxury goods.

Taxes being predominant revenue source for government operation and capital formation yielding future benefits through infrastructure investments, research and development with patent law protecting consumer and investor interests, the ultimate target is job growth.

Passing the jobs billbeginning with small business, medium and large corporations, manufacturing and service industry incentivized with capital interjection in the form of commercial loans at affordable rates and/or various taxes like payroll taxes reduction, deferments where applicable is a top priority transcending political partisanships and myopic view on the economic problems in the near and foreseeable term.

Exploring non-tax revenue in government owned corporations or quasi undertakings (public and private sector ventures) and,

Central Banks monitored sovereign wealth funds (SWF) primarily invested in global equity markets maximizing long term return alongside Foreign exchange reserves typically held in international floats e.g. U.S. dollar, euro, yen and sterling pound facilitate short term liquidity flow for capital infusion.

Spending is the balancing act that requires eliminating wasteful expenditures, trimming or downsizing overheads costs, maintaining and restoring entitlements programs especially –

Social SecurityReiterating the fact as the only safety net for American families enduring tough economic situation and non-interference in this regard would continue to deliver the desirable result.

Privatization would seriously jeopardize the financial security sustained in the current profitable investment for continuous payments necessary to stimulate the economy via consumer spending and growth expansion.

Medicare Senior citizens and low-income demography – the two key consumer categories would be forced to spend meager savings and income on expensive health care costs other than prescription drugs that could otherwise be diversified in retail consumption.

Norwegian model in this respect has successfully integrated essential social services like retirement, medical and disability benefits to all with capital investment in public trust.

As part of income redistribution the island nation with GDP per capita $53,269 ranked 3rd highest in the world consisting high living standards compared to European counterparts has managed against poverty, hunger and disease – the three survival factors posing impediments in progress for developed and developing nations.

Norway affected by European debt crisis is experiencing decline in high-end manufacturing similar to Germany with 40% GDP attributed to exports relying on global demand.

Defense Spending United States Global Empire established far and wide with 737 U.S. Military bases and more than 2,500,000 personnel deployed overseas in different locations is astounding and,

Unfortunately escapes the fiscal conservatives attention preoccupied in terminating social security, Medicare, Children nutrition… and other vital provisions in the entitlements for vulnerable population at home.

Not to mention the no-exit strategy wars in Afghanistan, Iraq and Pakistan with extended proxy wars in Yemen and Somalia taking human and economic toll to serve the defense industry profitability.

It is high time to review and reevaluate the defense budget saving trillions of dollars by ending foreign occupations and military warfare.

Instead upgrading national security mechanisms and facilities with sophisticated forces would be a formidable deterrent to potential threats.

Simultaneously defense divestments in economic and social development achieved with political stability in war torn nations would be more effective in containing terrorism considering the military aggression thus far has failed to produce any positive outcome.

Furthermore, the prolonged military intervention has contributed to terror networks proliferation and instigated violence against fellow citizens causing regional tension and instability witnessed in Pakistan, Afghanistan, Iraq and Somalia.

Hence retracting military aspirations to accommodate all-encompassing domestic goals is desperately needed to expedite national and global economic recovery.

Discretionary Spending Congressional discernment in appropriations act preserving job oriented and community enrichment projects would supplement remedies for economic revival.

Equilibrium in fiscal policy with spending streamlined and revenue boosted through fair taxation and,

Other avenues like penalties in environmental damage,

Hikes in licensing fee where appropriateanything endangering life and economic opportunity without aiming at average citizens or natural endowments for direct public use could complement measures in economic meltdown reversal.

Macroeconomic, Monetary and Trade policy together with European Sovereign Debt Crisis centralized on (PIGS) Portugal, Italy, Ireland, Iceland, Greece and Spain economies will be presented individually for clarity.

Meanwhile, getting the fiscal house in order to promote jobs with government and business cooperation would prevent economic crises escalation.

Peace to all!

Thank you.

Padfmini Arhant


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