the visible hand

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U.S. Policies Evoke Scorn at Davos

Posted by ecoshift on January 24, 2008

U.S. Policies Evoke Scorn at Davos – New York Times
By MARK LANDLER
Published: January 24, 2008

DAVOS, Switzerland — Over the years, the United States has fulfilled many roles at the World Economic Forum: dot-com dynamo, benevolent superpower, feared aggressor.

Now add wounded giant.

On the first day of the annual conference here, a parade of bankers, economists and government officials expressed deep fears about the faltering American economy — and blunt criticism, particularly of the Federal Reserve, which some blame for sowing the seeds of today’s crisis.For George Soros, the financier who made a fortune betting against the British pound, the slump now goes beyond subprime loans. It signals a reordering of the postwar economy and the end of dollar dominance.

“The current crisis is not only the bust that follows the housing boom,” Mr. Soros declared. “It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency.”

Suggestions of a new economic order abounded here: India’s commerce and industry minister, Kamal Nath, said that China had overtaken the United States as his country’s largest trading partner, buttressing his view that India could come through an American recession unscathed.

The head of the National Bank of Kuwait, Ibrahim S. Dabdoub, said Americans who opposed sovereign wealth funds, like the one run by the Kuwaiti government, need to come to terms with the new reality.

And an American economist, Nouriel Roubini, said bluntly, “The United States looks like an emerging market,” with large deficits and a weak currency. Brazil, an actual emerging market, had done a better job overhauling its economy, he said.

Mr. Roubini, whose frequent predictions of a downturn have made him something of a soothsayer at Davos, said that the United States would suffer a recession lasting at least a year. He foresees a flood of defaults on car loans and corporate bonds, and a prolonged bear market.

“The debate is not whether we’re going to have a soft landing or a hard landing,” he said, as his audience squirmed. “The question is only how hard the hard landing will be.”

Several economists said the Federal Reserve seemed to have lost control of events since the subprime crisis erupted last summer. Some criticized its steep cut in interest rates Tuesday as a knee-jerk reaction to calm markets, rather than a reasoned response to a deteriorating situation.

“Policy makers are reaching back into the same playbook that got us into this mess,” said Stephen S. Roach, the economist recently named chairman of Morgan Stanley Asia.

Mr. Roach argued that the Fed, by signaling its readiness to cushion the stock market from the credit crisis, risked creating conditions for a new round of inflation in asset prices.

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