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US Needs to Stop Spending: Former IMF Economist

Michelle Lodge
Monday, 28 Jun 2010 | 11:17 AM ET

The US needs to stop being the world spender of first and last resort, former IMF chief economist Raghuram G. Rajan told CNBC Monday.

“It turns out the rest of the world is straightening out, while the US continues to spend,” added Rajan, a finance professor at the University of Chicago’s Booth School of Business and the author of Fault Lines: How Hidden Fractures Still Threaten the World Economy .

Fractures in World Economy
The G20 Summit in Toronto wrapped up yesterday after two days of high-intensity meetings with world leaders, with Raghuram Rajan, University of Chicago-Booth School of Business and John Engler, National Association Of Manufacturers CEO.

“This imbalance in the world is a big source of concern, plus there are other fault lines we can continue to come to.”

Rajan said the markets are worried about countries’ debt loads, banks and future bailouts.

“In Europe they have substantially less fiscal room than in the US, especially in southern European countries,” he said. He added that the US government can expand its programs, but that the quality of its expenditures matters.

To lower the high unemployment rate in the US—which is at about 10 percent—the country needs to shift from an economy that’s excessively dependent on housing and construction and focus on its strengths, such as intellectual capabilities, he added.

About the US financial regulation reforms ,Rajan said he is taking a wait-and-see stance to see how the law plays out in practice.

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