Stimulus Won't Protect from Capital Flight: Strategist
The European and U.S. stimulus plans are not going to help economies which are relying on wide current account deficits and which are now hemorrhaging capital, Ian Harnett, European strategist at Absolute Strategy Research, said Wednesday.
"Nationalization is the opposite of globalization. And what people are missing at the current time is that the real problem for the credit crunch is actually the breakdown of cross-border private-sector capital flows," Harnett said.
So any economy that's been reliant on any kind of current account deficit is basically seeing a forced saving constraint placed upon it and that is not going to be resolved by the type of packages that's being put in place by the EU today, or even by the US government," he added.
In order to prevent a prolonged global economic slowdown, countries need to be encouraged to buy other countries' assets to keep the capital flows going, according to Harnett.
But we are likely to get an industrial recession as economies are not generating enough wealth, he said, predicting that German production will fall between 5 and 10 percent year-on-year into the first half of next year.
There is excess capacity that has been built up in the industrial and financial sectors which will be removed, Harnett added.