Pumping ever larger sums of cash into the global economy will produce correspondingly smaller results. What’s worse, the move will harm emerging economies which have the best chance of pulling the world out of its nosedive, one analyst believes.
As Kirill Ilinsky, managing partner at London-based Fusion Asset Management explained to RT: “Every stage of the financial crisis is on a bigger scale and is considerably more difficult to get out of. Every time you put in more money, the efficiency of putting in money is going down. Money disappears from problematic areas into areas which are not affected.
“It’s going into emerging markets, increasing labor costs there, increasing inflation, making emerging markets less competitive and less able to pull developed countries from the crisis. So the more money politicians put in the system, they effectively are killing the centers which are supposed to drag the whole economic system out of the crisis,” he said.
But bailout or no bailout, fixing the ailing world economy can only be a very long process, the economist said.
“If we look back at how the post-war debt was watered down and how it was dealt with, it took 10+ years. It’s a very slow process; there is a huge amount of debt. And the United Kingdom is probably the worst country in terms of total public and state debt, which is now around 450 per cent of GDP – worse than Italy and worse that the United States, although those are the most publicly known issues. There is also hidden debt, which is coming from pension liabilities. We don’t talk much about it, but actually it is a huge amount. There is no easy way. We over-consumed, we borrowed this debt, and we need to pay it back,” he said.
In the case of the eurozone and saving the euro, the big obstacle is that Germany and France, the two countries responsible for hammering out a solution for the crisis, have conflicting approaches due to different political considerations.
“Merkel sees it as a marathon. And really these sorts of problems, which have been accumulated over 30 to 40 years of debt expansion and uncontrolled spending, if you like, cannot be sorted out in three months. For Sarkozy, however, it’s about the April elections. So it’s either happening in the next two months very publicly and politically, or he has problems in his own country,” Ilinsky said.