Global Crisis/Innovation Blog 

Four Global Dilemmas: If You Have the Solution —  Call Us

By Shlomo Maital  

  British mathematician Andrew Wiles worked for three years in an attic study in   to prove Fermat’s Last Theorem.  Then, an error was found – and he worked for another tense year to fix it.  The theorem defied proof for over 358 years – from 1637 to 1995.

   The world seems to face  problems that are equally tough to solve.  But we cannot wait for 358 years to solve them. They need solutions NOW.  And we economists are helpless.  So perhaps non-economists can crack them.

   Here are the key dilemmas facing the world today, as I see them.  If you can solve any or all, please – use the blog feature to say how.  Better yet, call or write the G20, who next week will meet in comfy warm Cannes, a perfect site, because their bumbling has become a horror movie worthy of the Cannes Film Festival’s red carpet.

1.  Point: Americans are drowning in debt;  the overall U.S. debt  includes $50.7 trillion of debt owed by US households, businesses, and governments,  more than 3.5 times the annual GDP.  Fearful of their future, people are trying to reduce their debt and save. 

     Counterpoint: But the weak economy needs people to spend, not save. If they don’t, unemployment will remain high and the economy will stagnate.  Spending is key, because it makes up 70 per cent of GDP.  The other 30 per cent isn’t enough to compensate, even if it grows a lot.  

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2.   Point:   Greece cannot possibly pay even half of what it owes. Here is why:    “In 2012 it will have to pay some 52 billion euros (35 billion in mature bonds and 17 billion in interest), while it is expected to receive 12 billion euros from the EU.   In 2013, Greece is not expecting to receive anything from the EU, but it will still need to pay approximately 44 billion euros (27 billion in mature bonds and 17 billion in interest).   It needs to have more than 84 billion euros for the 2012-13 period alone, so even if it receives a loan of 60-65 billion euros, it will still have a shortfall of 20-25 billion.  Life, however, does not end in 2013. Where will Greece find the tens of billions of euros it need annually to service its massive debt? And what will happen after 2014, when the amount to cover interest rises?”  Stavros Lygeros, Greek journalist. 

   Counterpoint:   But if Greece does not pay what it owes, EU banks will take a huge hit, threatening the stability of the entire EU financial system, and requiring a bailout.

  Counterpoint:  But German, French and British taxpayers balk at having their taxes used to bail out Greece, or, for that matter, to bail out banks.   British finance minister Osborne just declared he wouldn’t think of it.   The “solution” announced today by the EU is inadequate.

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3.  Point: America’s weak economy needs huge amounts of dollars to be pumped into it, as it is on life support, to keep interest rates low.

     Counterpoint:  But the buckets of dollars pouring into the world are weakening the dollar, eroding its stability as the world’s currency.  Once central banks held 90 per cent of their reserves in dollars; now it’s closer to 60 per cent. The global economy needs a stable dollar, the U.S. economy needs a weakened dollar to stimulate exports.

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  4.  Point: Democracy is an intrinsic good, an ‘anchor’ value. 

      Counterpoint:  Yet democracy continues to elect incompetent politicians. And they’re getting worse.  China selects leaders very undemocratically – and they are highly educated, highly tested (years of serving as deputies) and highly respected. 

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