Business leaders call for more crisis leadership
Posted by meb at January 24th, 2008
Business leaders appealed for more leadership from U.S. and other central banks to head off an economic downturn on Wednesday, with some accusing policy makers of losing their grip and their nerve.
As shares in Europe fell heavily again on Wednesday on deepening fears of a slowdown, a day after an emergency US interest rate cut, top executives expressed alarm as they gathered for an annual retreat in the Swiss resort of Davos.
“Central banks have lost control,” said billionaire financier George Soros. Other executives attending the opening discussions of the annual meeting of the World Economic Forum in Davos said the surprise decision by the US Federal Reserve on Tuesday to cut interest rates by 75 basis points looked like a panic move. “We have a market-friendly Fed possibly injecting a lot of liquidity in the system which will set us up for another bubble economy,” said Stephen Roach, head of Asia for US investment bank Morgan Stanley.
“I’m sort of worried that all they did yesterday was to hit the snooze button. (This is) excessive monetary accommodation that just takes us from bubble to bubble to bubble.”
Lawrence Summers, a former US treasury chief, was critical too: It’s hard to give a high grade (to central banks) for what’s happened in the last six months. But another former head of the US Treasury, John Snow, was more supportive of the US central bank. “What yesterday’s action shows us is the Fed is focused but they are aware of negative trends in the economy and prepared to take bold steps,” he said.
More than 2,500 business and political leaders are gathering in Davos, facing what many fear could be the biggest financial crisis since World War Two. The emergency US interest rate cut on Tuesday, after two days of plummeting stock prices, set the tone for the WEF meeting where financial, industrial and political figures, including US Secretary of State Condoleezza Rice, are awaited. Policymakers accustomed to relaxed, apres-ski fireside chats will this year confront a raging banking crisis and a widely forecast recession, with policy differences between the United States and Europe at the fore.
The Fed’s unilateral action on Tuesday, when it cut rates by 75 basis points, was its biggest emergency cut in two decades. It will either put pressure on the European Central Bank to relax its view against cutting rates and coordinate a response, or admit a policy rift between Europe and the United States.
European Central Bank chief Jean-Claude Trichet, speaking in Brussels on Wednesday before departing for Davos, refused to yield to calls for European interest rate cuts, saying the ECB would stick to its target of keeping inflation low.
Worries are intensifying that fallout from the credit crisis — which began in earnest in August when problems in the US subprime mortgage sector led to a seizure in interbank lending — will be felt in all corners of the globe.
“No economy can decouple itself from the US,” said Indian trade minister Kamal Nath. But he added: “I don’t see the impact as that substantial in India.”
source: Today’s Zaman
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