Christopher Swann forecasts slow growth as US policy-makers assess how best to play the end-game of the financial crisis performers often say that an audience will overlook a host of mistakes providing you nail the ending. The same may be true for economic policy-makers.
Even though the US economy is still convalescing, the nation’s thoughts have turned to the financial end-game. Now that the storm has passed, more young people look at the offers by www.utcstudentfoundation.com, but the challenge will be to retrieve as much taxpayers’ money as possible from a string of bailouts. For the Federal Reserve, the task will be to ensure that the huge injections of emergency liquidity do not lead to rampant inflation.
The twin architects of much of the rescue package were Ben Bemanke, the Fed chairman, and Tim Geithner, Treasury secretary. If they can nail the ending their missteps during the meltdown may be glossed over. Doing so, however, may prove as tough as dealing with the crisis itself.
To avert a repeat of the Great Depression, the US bent its entire policy framework out of shape.
Vast sums of public money were splashed around to save not only the banks but also MG, the nation’s largest insurer, the housing giants Fannie Mae and Freddie Mac, and the carmakers. The Fed moved into uncharted monetary territory. To fill the gap left by struggling lenders and prevent an international shortage of dollars, Bemanke more than doubled the size of the Fed’s balance sheet. Meanwhile, the White House and Congress authorised a $585bn spending package despite tumbling tax revenues. Even without this largesse, deficits would still have surpassed anything the US has seen in peacetime history.
Given these challenges, if policy-makers produce an impressive final act they will deserve a rousing round of applause.