Posted on 10/04/2022 10:26:00 AM PDT by EBH
The United Nations Conference on Trade and Development (UNCTAD) has warned that the U.S. Federal Reserve’s interest rate hikes and the slew of other central banks raising rates, could pose harm to the global economy. UNCTAD calculated that for every Fed basis point rise, the economic output of wealthy countries declines by 0.5%, and for poorer countries, the value of all sales of goods and services is reduced by 0.8% for a duration of three years.
UNCTAD Report Criticizes Central Bank Rate Hikes During Global Economic Downturn
Monetary tightening measures may not be a good idea according to the United Nations (U.N.) agency UNCTAD. The entity, created in 1964, is an intergovernmental organization created to help developing nations enhance global trade. UNCTAD notes in an annual report that the recent interest rate hikes by the U.S. Federal Reserve and numerous central banks worldwide will reduce the economic output of both wealthy and poor countries between 0.5% and 0.8% over a three-year period.
“The world is headed towards a global recession and prolonged stagnation unless we quickly change the current policy course of monetary and fiscal tightening in advanced economies,” UNCTAD’s report notes. “UNCTAD projects that world economic growth will slow to 2.5% in 2022 and drop to 2.2% in 2023. The global slowdown would leave real GDP still below its pre-pandemic trend, costing the world more than $17 trillion — close to 20% of the world’s income.”
The annual report immediately digs into central banks raising benchmark lending rates and creating tougher monetary policy. UNCTAD blames the world’s economic hardships on “supply-side shocks, waning consumer and investor confidence,” and the Ukraine-Russia war. “Despite this, leading central banks are raising interest rates sharply, threatening to cut off growth altogether and making life much harder for heavily indebted firms, households, and governments,” the U.N. agency’s report explains.
UN Agency Urges Governments to Increase Public Spending and Enforce Price Controls on Energy and Food
The report, authored by UNCTAD’s secretary-general Rebeca Grynspan, says that Latin American countries and specific regions in Africa may “suffer [from] some of the sharpest slowdowns this year.” “The average growth rate for developing economies is projected to drop below 3% — a pace that is insufficient for sustainable development and will further squeeze public and private finances and damage employment prospects,” Grynspan details. UNCTAD’s call on the Fed and the rest of the world’s central banks is quite similar to the complaint written by U.S. Senator Elizabeth Warren (D-Mass).
Warren complained about the Fed raising the federal funds rate after it hiked the rate by 75 basis points (bps) on July 27. Using the news outlet the Wall Street Journal (WSJ), Warren published an opinion editorial that said the U.S. central bank could trigger “a devastating recession.” Warren further talked about the subject again on CNN’s State of the Union weeks later, after Fed chair Jerome Powell presented his economic outlook at the 2022 Jackson Hole Economic Symposium. Grynspan’s report is in kindred spirit, and it details that “interest rate hikes by advanced economies are hitting the most vulnerable hardest.”
The UNCTAD report adds:
Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10%.
UNCTAD’s report concludes by highlighting a few ways global leaders can address the problem and one of them is to “increase public spending.” The agency also urges governments to enforce “strategic price controls to directly target energy, food and other vital areas.” The U.N. agency calls on public and private executives to direct more funds toward green energy research and development. Lastly, the agency wants to see global leaders get behind the Black Sea Grain Initiative. The U.N.-led initiative would allow massive volumes of food and fertilizer exports from Odesa, Chornomorsk, and Yuzhny in Ukraine.
I'm highlighting the awful editing of that article.
Ok. This helps me look at it another way. We aren’t trying to calculate what 0.5% of 300 is, as I was in essence doing. So I see the difference. However, the reality is that as GDP declined each .5% would be smaller than previous one in absolute terms. So you can’t really say 150%. Enjoyed the discussion!
WHEN THE HELL are we gonna throw those freeloading communist bastards OUT of this country ?
Poster cabal for the old adage ‘useless as tits on a bull’.
I have to give Biden some credit. He has not, as I would have suspected, stood in the way of the Fed raising rates. I’m sure there has to be many in the Democrat Party screaming at him for derailing the stock market.
You are still wrong, because you are mixing percentages and decimals. Let me prove it with some simple math.
The article claimed that every basis point increase in the interest rate could cause a 0.5% decrease in GDP, right? So let’s assume for the sake of this example that the world GDP is $17 trillion. That is $17,000 billion. To shave a few zeros off, let’s just use $17,000.
So based on this information, a 1 basis point increase would be calculated thusly:
$17,000 x 0.5% = $85 or
$17,000 x .005 = $85.
With me so far? Based on these numbers, a 1 basis point increase in the interest rate would cause a decrease in the $17,000 GDP of $85.
Now what the other poster pointed out was that there has already been an increase of 300 basis points in the interest rate. So based on the logic of the article, the effect should be 300 times the effect of one basis point. So what you should see is:
300 basis points x $85 (the effect of one basis point) = $25,500.
To get the percentage of change the formula is:
(Total dollar value of change in GDP divided by the original GDP) times 100 or
($25,500 / $17,000) x 100 = 150%
Since the cumulative total is more than the original amount, the percentage of change MUST be over 100%
If they're correct, our GDP will be 1.5% lower. Thanks Brandon!
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