By Michael Casey
A DOW JONES NEWSWIRES COLUMN
NEW YORK (Dow Jones)–With the global economy caught in a giant debt trap, some pundits are thinking about a radical new world financial order.
The way things are headed, some say, the International Monetary Fund could evolve into a de facto global central bank, armed with its own currency for doling out loans to advanced and emerging economies alike. It’s a politically unrealistic idea over the medium term, but the force of history behind a shifting world power balance could eventually overwhelm such obstacles.
The Catch-22 for the advanced economies of Europe, the U.S. and Japan is that to bring down their excessive future liabilities and placate nervous bond markets, they must slash spending even though this would undermine the global recovery and possibly worsen their debt ratios. Having borrowed to bail out indebted businesses and consumers, governments have reached the end of the line.
There is no one to help them out–not with the IMF organized as it is.
For now, advanced countries don’t need outside help. Despite the massive debt outstanding, markets continue to finance the governments of the U.S., Japan, Germany and the U.K at super low rates. Continue reading…