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The United States has poured trillions of dollars into its economy during the pandemic, and if President Joe Biden has his way, it will continue doing so for the next several years.
While most of the attention to the stimulus and recovery payments in the U.S. has focused on the domestic economic impact, economists have their eye on another side effect: the “spillover” benefits to the rest of the world.
“The government is sending out checks to everybody,” said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. “Households and state and local governments are buying all kinds of supplies for education and health care — we haven’t had a government budget deficit this big since World War II.”
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Even though it is currently impossible to say what percentage of the stimulus money coming from the federal government will be spent rather than saved, the “massive” amount of money involved guarantees large economic impacts, Gagnon said.
A ‘phenomenal experiment’
Gagnon explained that in an economic boom, the percentage of spending directed overseas — in normal times between 15% and 20% — increases sharply. “So that means that maybe as much as 30% of all this extra spending could spill over onto other countries.”
The level of spending by the U.S. right now amounts to a “phenomenal experiment,” Gagnon said.
“Overall, it’s good for the world,” he said. “In fact, it’s so good that it might end up being a political issue in the U.S. because our trade deficit is going to get much larger, and people will say, ‘Why is the federal government borrowing all this money to support jobs in China and in Germany?’ ”
The US as ‘locomotive’
Falk Bräuning, a senior economist and policy adviser in the Federal Reserve Bank of Boston Research Department, said that there is a “strong consensus” among economists that the spillover effects from increased U.S. spending are very significant for other countries.
“The U.S. is really on track for a very strong recovery after last year,” he said, adding that the U.S., as the world’s largest economy, can serve as a “locomotive” that pulls other economies along behind it.
“The booming U.S. economy will help other countries to recover faster and more strongly,” Bräuning said. “So we expect strong, positive spillover effects on direct trade partners to the United States. In fact, we see part of that already materializing.”
Germany, he pointed out, is already reporting strong export growth to the U.S. based on increased demand.
Some benefit more than others
The bulk of the benefit from increased U.S. spending abroad will likely accrue to other large economies in Europe and Asia, experts said. And countries such as Mexico and the nations of Central America, which all have economies closely tied to the United States, will likely see substantial increases in their exports.
Countries that rely on tourism for most of their income, however, probably won’t see much benefit from increased U.S. spending until the travel industry recovers more fully.
And the economic boom in the U.S., while good news for much of the world, could also have some downsides.
Inflation and rising interest rates
Desmond Lachman, a resident fellow at the American Enterprise Institute in Washington, said that he expects the large volume of extra spending in the U.S. to overheat the economy within the next year, and that will have follow-on effects that may hurt other countries.
“The negative side is that if the United States economy overheats … then what that does is it produces high-interest rates in the United States,” he said.
When that happens, investors who had taken their money overseas in search of higher returns will start seeing new opportunities in the U.S. and will bring that money back. Lachman pointed out that precisely the same thing happened in 2013 when the Federal Reserve began raising interest rates after the Great Recession.
“This is serious because a lot of these countries are just totally dependent on money coming from the United States to keep them afloat,” Lachman said. “They’re running big budget deficits, and they’re really in very bad shape.”
Lachman said that he is looking particularly at countries such as Brazil, South Africa, and Turkey, which would be hit particularly hard if U.S. capital begins to flow away from them.
The problems will be compounded for countries that have borrowed money that they are required to pay back in U.S. dollars. As U.S. interest rates rise and the dollar strengthens, making those debt payments will become more of a financial drain on debtor nations.
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A cautious approach
Bräuning, the Federal Reserve Bank of Boston economist, said the Federal Reserve is well aware of the potentially damaging effects of disrupted international capital flows, and it will be cautious about how it approaches changes to monetary policy.
“I think the key to avoiding these disruptive effects is that interest rates increase gradually and not abruptly,” he said. Economic research, he said, “has found that as long as there’s a gradual and kind of predictable path of the interest rate, then these disruptive effects — especially for emerging markets — resulting from capital outflows are much less severe.” (VOA/KB)
NEW DELHI - India Navy sending four ships for exercises and port visits with the Philippines, Vietnam, Singapore, Indonesia and Australia to strengthen cooperation in the Indo-Pacific region, its navy said Wednesday, as China's maritime power grows in the area.
The Indian ships will spend more than two months in the region, the navy said in a statement.
Commander Vivek Madhwal, the Indian navy spokesman, said four ships will take part.
The ships will also participate in a multilateral exercise, MALABAR-21, along with the Japanese, Australian and U.S. navies, the statement said.
It said the exercises will enhance coordination with friendly countries, based on common maritime interests and a commitment to freedom of navigation.
"Besides regular port calls, the task group will operate in conjunction with friendly navies to build military relations and develop interoperability in the conduct of maritime operations," the statement said.
The U.S., India, Japan and Australia are part of the Quad regional alliance created in response to China's growing economic and military strength. Washington has long viewed New Delhi as a key partner in efforts to blunt increasing Chinese assertiveness in the Indo-Pacific region.
India is also in a continuing standoff with China over their disputed border in the eastern Ladakh region. The countries have stationed tens of thousands of soldiers backed by artillery, tanks and fighter jets along their de facto border, called the Line of Actual Control.
Last year, 20 Indian troops died in a clash with Chinese soldiers involving clubs, stones and fists in a portion of the disputed border. China said it lost four soldiers.(VOA/HP)
The UK government on Thursday announced that it will move India from the red to the amber list on Sunday, in the country's latest update to the 'Red-Amber-Green' traffic light ratings for arrivals into England amid the Covid-19 pandemic.
This means the visit visas for the UK from India are open, in addition to other long-term visas that have remained open. But travellers from India arriving in England can complete a 10-day quarantine at home or in the place they are staying (not mandatorily quarantine in a managed hotel).
The UK government also announced that arrivals from France to England will no longer need to quarantine if they are fully vaccinated. The step aligns France with the rest of the amber list now that the proportion of beta variant cases has fallen, where those who are fully vaccinated with a vaccine authorised and administered in the UK, the US or Europe do not need to quarantine when arriving in England.
This move also simplifies the system to three categories, as well as the green watch list to give travellers notice where green status is at risk.
To continue cautiously reopening international travel, Austria, Germany, Slovenia, Slovakia, Latvia, Romania and Norway will be added to the government's green list, having demonstrated they posed a low risk to UK public health.
Besides India, Bahrain, Qatar and the UAE will also be moved from the red to the amber list, as the situation in these countries has improved.
The data for all countries will be kept under review and the government will not hesitate to take action where a country's epidemiological picture changes, a statement by the UK government said.
Following an assessment of the latest data, Georgia, La Reunion, Mayotte and Mexico will be added to the red list as they present a high public health risk to the UK from known variants of concern, known high-risk variants under investigation or as a result of very high in-country or territory prevalence of Covid-19.
Arrivals from Spain and all its islands are advised to use a PCR test as their pre-departure test wherever possible, as a precaution against the increased prevalence of the virus and variants in the country.
Transport Secretary Grant Shapps said: "We are committed to opening up international travel safely, taking advantage of the gains we've made through our successful vaccination programme, helping connect families, friends and businesses around the world.
"While we must continue to be cautious, today's changes reopen a range of different holiday destinations across the globe, which is good news for both the sector and travelling public."
Since February, anyone who arrives in the UK from a red list country has been required by law to book a stay in a managed quarantine facility for 10 days.
In order to ensure taxpayers are not subsidising the costs of staying in these facilities, which have gone up, the cost will increase from August 12. Alternative payment arrangements remain available to those who genuinely cannot afford to pay and rates remain the same for children up to 12.(IANS/HP)
A Hindu temple in Pakistan's Punjab province was reportedly vandalized by hundreds of people after a nine-year-old Hindu boy, who allegedly urinated at a local seminary, received bail, a media report said on Thursday.
According to the Dawn news report, the incident took place on Wednesday in Bhong town, about 60 km from Rahim Yar Khan city.
Besides the vandalization, the mob also blocked the Sukkur-Multan Motorway (M-5), the report added.
Citing sources, Dawn news said that a case was registered against the minor on July 24 based on a complaint filed by a cleric, Hafiz Muhammad Ibrahim, of the Darul Uloom Arabia Taleemul Quran.
The sources said that "some Hindu elders did tender an apology to the seminary administration saying the accused was a minor and mentally challenged".
But, when a lower court granted him bail a few days ago, some people incited the public in the town on Wednesday and got all shops there closed in protest, the report quoted the sources as further saying.
A video clip showing people wielding clubs and rods storming the temple and smashing its glass doors, windows, lights, and damaging the ceiling fans went viral on social media.
In response, one Twitter user said: "Ganesh Temple, village Bhong in Rahim Yar Khan, Punjab has been ravaged. Another day, another attack on Hindus in Pakistan."
Another said: "Yesterday, the mob ran amok at Temple over minor boy issue who allegedly urinated, the boy said to be mentally handicapped. Hindu community made an apology for the boy — a case registered against the nine-year-old boy. Those vandalized temples, no FIR registered against them."
District police spokesman Ahmed Nawaz Cheema said Rangers had been deployed in the troubled area and the situation was under control.
A small town close to the River Indus and Sindh-Punjab border, Bhong houses a number of gold traders who originally hail from Ghotki and Dehrki (Sindh), according to the Dawn news report.
A ruling PTI member representing the minority said he had been in touch with the local Hindu community and influential Rais family of Bhong since the issue surfaced.