With the subprime crisis in the US causing worldwide reverberations, we asked a group of leading economists to consider whether a soft or hard landing was in prospect. They also considered sovereign wealth funds, the renminbi and the roles of the IMF and World Bank.
A discussion about whether the world economy is faced with a soft or a hard landing is always an interesting one and, with the financial crisis of recent weeks, the background to the discussion here could not have been more timely.
The days of cheap credit are certainly coming to an end and the world’s financial markets have been awash with rumours that have been fuelled by news that some of the biggest home loan providers in the US are facing collapse. These rumours have helped to trigger falls in global stock markets and worries are growing that the world economy is facing a credit crunch. Are banks carrying hidden losses and is the crisis in the US subprime market likely to spread to Europe and the rest of the world? Is the turmoil of recent weeks in the world’s financial markets going to have an impact on the ‘real economy’ and employment?
The financial markets appear to have turned and in the past few weeks there have been wild gyrations. At times, the whiff of panic has been in the air on both Wall Street and in the City of London. As markets plummeted, even level-headed analysts were talking of a financial Armageddon. It is a serious situation, but the world economy is not in recession, yet.
While the ups and downs of the financial markets have taken the headlines, worries remain about global imbalances, especially China and its soaring trade surplus. Last year’s US/China deficit was a record $233bn. Is the renminbi overvalued or undervalued?
The Chinese decision to buy a stake in private equity firm Blackstone and the £1.5bn ($3bn) purchase of a stake in Barclays has raised fears about the growing role of sovereign funds and what might happen should countries like Russia and those in the Middle East wish to buy stakes in strategic industries. Are these funds doing some good or should they be feared?
Are emerging market crises a thing of the past and what should be the role of the IMF and World Bank? The Banker invited a number of leading economists and academics to comment.
Joseph Stiglitz, Professor Columbia University
Professor Norbert Walter, Chief Economist Deutsche Bank Group
Warner Max Corden, Emeritus Professor of Int’l Economics Johns Hopkins University
Charles Dumas, Director Lombard Street Research Ltd
Charles Wyplosz, Professor of International Economics Graduate Institute of Int’l Studies, Geneva
David Wyss, Chief Economist -Standard & Poor’s
