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Are the world’s economies staking too much on private growth?

“The world’s rich countries are now conducting a dangerous experiment,” wrote David Leonhardt in The New York Times. “They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured.” Leonhardt warned that this is a gamble on the ability of the private sector. “If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.”

With Europe already in the full swing of retrenchement, it looks like the US is beginning to follow suit. The Huffington Post worried that, with midterm elections drawing near, “it’s becoming increasingly difficult to convince Congress that more government money is needed to pull the United States out of its economic slump. Hopefully they were paying attention to Tuesday’s stock market plunge.” The site was referring to yesterday’s downturn, when an index forecasting Chinese economic activity was revised downward and strikes hit Greece, while the Dow Jones industrial average plunged 268 points after news of a fall in consumer confidence.

“With home sales sliding, employers reluctant to hire and world stock markets gyrating wildly, the U.S. economy is in danger of stalling,” cautioned Alan Semeuls at The Los Angeles Times. “Now one of its only reliable sources of fuel is running out: federal stimulus spending.” Much of the $787-billion stimulus from legislation passed last year has now been spent and there is now concern about what will replace it in the short-term.

“As Europe’s major economies focus on belt-tightening, they are following the path of Ireland,” wrote Liz Alderman in the same paper. “But the once thriving nation is struggling, with no sign of a rapid turnaround in sight. Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.”

That said, Ireland has now exited recession, reported Quentil Fottrell in the Wall Street Journal. Domestic product grew 2.7 percent in the first quarter. To counter this optimism, “gross national product, which excludes the crucial multinational sector credited for creating the 1990s economic boom, declined 0.5% during the quarter,” reported Fottrell, noting the Irish government “ambitious” (perhaps over-ambitious) deficit reduction targets.

So what’s the latest outlook for the global economy? Although David Leonhardt warned that pessimism “seemed the better bet”, there has today been something of a European rally in the wake of a boost in hopes by the European Central Bank for “a smooth return” of last year’s €442bn emergency loan to banks. Writing in the Financial Times, Ralph Atkins reported that “just €131.9bn in three-month liquidity was taken by 171 banks . . . . The low figure suggested banks’ nervousness about their future funding and inability to tap commercial markets might have been overdone.”