The US is calling for other nations to put more money into their credit and financial systems to help pull the world out of a deepening recession.
One of the problems is that many countries may not have access to the capital they would need to pull their own weight.
According to the FT, “Lawrence Summers said the urgent need for a short-term increase in spending by governments temporarily overrode the longer-term goal of tackling the global imbalances many economists believe caused the financial crisis.”
It is not clear that the UK and EU nations can print money the way that the US Treasury can because they may not have the same access to global capital markets. As many nations sells more debt simultaneously the interest rates that they have to pay rises.
The limits to the ability of sovereign central banks and treasuries to raise cash may be at the heart of a breakdown in providing future stimulus. As the recession cuts into tax income and the need for spending on social services rises with unemployment some large countries may be faced with the fact that they have “too many mouths to feed” If the bailout dollars required to keep America out of a flat spin rise sharply from current levels even the world’s largest economy may not have access to trillions of dollars by tapping the debt markets through more sales of Treasuries.
The next hurdle to government stimulus packages in developed nations may be very simple. They may simply run out of money and lose the capacity to raise more.
Douglas A. McIntyre