NEW YORK, June 30 (UPI) -- The seismic shift in economic policies from stimulus spending to deficit reduction is a risky step, a U.S. economist at the Bank of England said.
"The world may be making a mistake, and it may turn out to make things worse, rather than better," Adam Posen, a member of the Bank of England's Monetary Policy Committee, was quoted as saying by The New York Times Wednesday.
The turnaround from stimulus spending to passing austerity budgets began in Greece, which had no choice, as it was running out of funds and finding the bond market cost prohibitive, the newspaper said.
In Europe, the fear of too much debt spread to Spain, Portugal and Britain, but also enveloped Germany, an economy with a positive trade balance.
In the United States, the Senate has balked at extending unemployment benefits or sending additional aid to states, which could backfire. The Senate's fear of spending is an "increasingly important risk to growth," Goldman Sachs economists warned this week.
The purpose of government spending is to re-ignite the private sector and there are signs that stimulus programs and lower interest rates set by central banks in the past two years have worked. At this point, with help from emerging economies, "The chances we're going to come out of this OK are still larger than the chances that we aren't," Posen said.
