Adjusting the current forces at work in the global economy requires completing global bank reforms, making progress in getting China and other emerging economies to move to more flexible exchange rates, addressing global imbalances and other structural changes to global systems.
He noted that the Bank of Canada pegged the potential difference between the co-operative path among the G20 countries and not working together at $7 trillion by 2015.
Even so, he said making the right adjustments won’t be easy or painless, nor is he assured that the G20 is up to the task.
“Time will tell whether the G20 nations can better the underwhelming track record of the G7 in co-ordinating policies,” he said.
Paul Volcker, former chairman of the U.S. Federal Reserve and current chairman of President Barack Obama’s Economic Recovery Advisory Board, was equally gloomy.
“I think it is fair to say that we will not reach, in the United States, peak levels of production for several years even on a reasonably optimistic trajectory,” Volcker said.
“We have a financial situation in the United States that’s still operating on maybe two cylinders, but it’s not operating on six cylinders,” he said.
Volcker was also concerned about the strength of emerging economies such as China, India and a number of Latin American countries. Such countries are exhibiting a “remarkable rate of recovery,” becoming investors in and lending money to the traditionally wealthier states, he said.
“Not only are they expanding very fast but we have a phenomena that is not seen or written about in economic textbooks,” he said.
“That tells you there is something really rather seriously wrong and imbalanced in the world economy. We have been for some time in an unsustainable economic pattern.”
Volcker said Europe is suffering from many of the same problems as the United States and will need “years and not months” to recover.
“They are showing the same symptoms that we have had in the United States with the risk that puts the stability of the euro itself in some jeopardy.”
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