Question

Compare the “soundness” of the Germany’s and China's fiscal and monetary macro-economic policies; have these policies addressed the countries’ challenges, or made them worse? You will need 1-3 sources for this question. Source citing is required.

Answer 1

Financial Policies in the Run-Up to the Crisis:

It has become fashionable, even commonplace, to blame outside factors for the crisis in the United States. Alan Greenspan has argued that the crisis had its roots in the end of the Cold War.3 Others have attributed the crisis to the rise of China, which unbalanced global markets by significantly augmenting the global labor supply with workers with an inordinate inclination to save (Bernanke 2010).

A number of other countries (China, Germany) were similarly in a position to provide considerable fiscal support for spending because they entered the crisis with their powder dry (with relatively low levels of debt). A second hypothesis is that the fiscal response should have been more discriminating. Countries that entered the crisis with heavy debt loads should have been more cautious before undertaking additional deficit spending. They should have recognized that they were apt to run up against problems of debt sustainability relatively quickly because their inherited debts were heavy and also because the denominator of the debt/GDP ratio was now likely to grow more slowly due to the permanent damage to their economies and financial systems. But in the heat of battle everyone laid on massive fiscal stimulus, regardless of whether or not they were really in a position to do so.

Source: Fiscal stimulus data from the IMF's Fiscal Monitor, May 14, 2010

Government debt data from website of the Inter-Agency Group on Economic and Financial Statistics for Australia, Brazil, France, Germany, Italy, Mexico, Russia, South Africa, UK, and the Euro Area; Reserve Bank of India's Handbook of Statistics on Indian Economy, the Department of Finance Canada, Instituto Nacional de Estadística y Censos (Argentina), the Ministry of Finance of Japan, the Economist Intelligence Unit for Turkey, and the U.S. Department of the Treasury, Bureau of the Public Debt.