CEOs at this year’s World Economic Forum Annual Meeting, voted today that sovereign debt poses the next imminent threat to the global economy.
51% of delegates at the CNBC debate, Back to the Future: The Next Global Crisis, voted that sovereign debt was the largest threat to the global economy, as the banking crisis has morphed into a long-term government-debt crisis.
The debate, hosted by CNBC’s Maria Bartiromo, asked a panel of leading global experts to examine the challenges and choices that need to be made to prevent another global crisis.
The sovereign debt proposition was led by Professor Ken Rogoff, Professor of Economics, Harvard University, who commented, “The United States won’t be able to grow its way out of the financial crisis like it did after World War II, that’s ‘voodoo economics.’
“Countries like the United States and Britain, I’m not talking about default, but very high political prices, belt tightening, higher taxes, slower growth.”
“A wave of international banking crises is often followed by a wave of sovereign debt crises.”
Threat of Protectionism
37% of delegates thought that the next largest threat would be if governments retreat to protectionism and be tempted to politicise monetary policy.
This proposition was led by Dr Jacob Frenkel, Chairman, JPMorgan Chase International who commented that there is a danger that “..with excessive zeal to protect us all from that crisis the government will be overly activist.”
“If there is one proposition that is universally agreed upon in history, it is that free trade is a win-win proposition.”
Protectionism “is a state of mind, thinking that globalization is bad, that emerging markets should be separated from us, that China is a threat and not an opportunity.”
“The fact that there are losers (in trade) is not a justification for protectionism. It’s the justification for the adoption of trade adjustment programs.”
Threat of Regulation
The other area debated was if over regulation will cause the next global crisis. Twelve per cent of delegates agreed with the proposition led by Lord Peter Levene, Chairman, Lloyd's of London, who commented, “Sarbanes Oxley was a huge success, not for New York and Wall Street, but for London and the City.”
“We wanted to build a statue to Messrs. Sarbanes and Oxley for sending so much business to us.”
We should use the rules we teach our children when crossing the street: “Stop, look, listen – add one word – and learn.”
Each motion was challenged by:
· Barney Frank, Congressman (Democrat, USA) and Chairman of the Financial Services Committee
· Dr. Zhu Min, DeputyGovernor, People’s Bank of China
· Anand Mahindra, President & Managing Director, Mahindra & Mahindra
Quotes on Sovereign Debt
Dr. Zhu Min,Deputy Governor, People’s Bank of Chinaquotes:
“The risk for a sovereign debt crisis is real.”
“For this coming year the real risk for the global economy is very weak and volatile economic growth.”
Anand Mahindra, President & Managing Director, Mahindra & Mahindra quotes:
“You grow your way out of the sovereign debt crisis.”
“If Keynes is right, and I think he’s been proven right more than once. The economy can be like a Formula 1 race and counties need to take a pit stop and fuel up.”
“We don’t take into account enough of the resilience of our species. When you have doomsday warnings people react.”
Barney Frank, Congressman (Democrat, USA) and Chairman of the Financial Services Committee quotes:
The reason we’re in this mess is that “Someone decided to get the joint Nobel prize for economics and fiction with the theory that you could finance two wars with five tax cuts.”
“There’s concern about the dollar being the fallback currency for the world. The Pentagon shouldn’t be the fallback military for the world.”
“I am going to go back and try to raise the taxes of most people who attended here.”
“I am for raising taxes on the appropriate people and the appropriate way.”
Quotes on Regulation
Anand Mahindra
“(Obama) hasn’t even said bring back Glass-Steagle, even though he ought to. At least Son of Glass-Steagle should come back.”
(Regulations have to) “make real banks stay with lending. Then we’ll have lending to real people, to build real things and have real food on their table.”
Rep. Barney Frank
“We have given the regulators the power to do (Glass-Steagle) on a case-by-case basis.”
Dr. Zhu Min
“Obviously there’s no perfect regulation, but there’s no perfect market either.”
Quotes on Protectionism
Rep. Barney Frank
“Those in power in America, maybe other parts of the world, during the past 20 years or so, have failed to do anything about the equitable distribution of the benefits of free trade.”
Anand Mahindra
“US companies will become uncompetitive if they are taxed for outsourcing.”
“If you get protectionism, India, China and others will put down the barriers as well.”
The Back to the Future debate will air around the world on CNBC in a special one hour programme on 29th January 2010 at 23.00 CET. The programme will also air on CNBC in the US at 22.00 EST and in Asia on 30 January at 17.30 HK/SING.
The results of the debate were supported a special poll on LinkedIn, the world’s largest professional network, where 36% of respondents cited that national debt levels were the next potential threat to the global economic system that should have our most urgent attention.
CNBC’s coverage of the Annual Meeting
CNBC has extensive coverage at this year’s World Economic Forum Annual Forum, with live interviews and analysis on-air, online and with special programming. Visit davos.cnbc.com to watch video interviews, read additional exclusive news stories and blogs from reporters on the ground.
CNBC is a World Economic Forum Strategic Partner.