WASHINGTON, December 8 – With US automakers in overdrive trying to avoid bankruptcy, this year\’s Nobel economics laureate cautioned that we just may have the knowledge to ward off a new Great Depression.
In Washington, Democrats Sunday said a deal was imminent after a weekend of negotiations with the White House on a short-term loan package of about 15 billion dollars, but Republicans warned that a tough debate awaited the proposed bill this week.
A business-savvy "car czar" could be named to oversee taxpayer-funded loans to the Big Three automotive giants, which employ millions of US workers, but critics of the bailout said money alone would not solve the industry\’s woes.
"This is a bridge loan to nowhere," Senator Richard Shelby said on Fox News, adding that the unionized shops had grown unwieldy and needed downsizing.
"These companies basically have failed," said Shelby, the top Republican on the Senate banking committee.
After chiefs of General Motors, Ford and Chrysler pleaded for urgent aid last week and alarming government figures were released showing the unemployment rate at 6.7 percent, a 14-year high, Democrats dropped their opposition to a White House-backed plan to borrow rescue funds from a subsidized loan program for fuel efficient development.
In exchange, leading Democrats said any loan must be swiftly repaid, and pressed for a government-appointed "car czar" to oversee the bailout. Former General Electric boss Jack Welch is one of the names mentioned for the post.
In early Asian trading on Monday, Japanese and South Korean share prices opened slightly higher while Australian shares jumped nearly two percent, all following Wall Street\’s rally on Friday on hopes that the US government will roll out further measures to bring the economy out of recession.
In Stockhom, the 2008 winner of the Nobel economics prize Paul Krugman said that lessons learned from the 1930s depression and from more recent economic crises could be the only thing warding off a new Great Depression.
"If we had not already experienced the Great Depression, I think we would be about to have another one," said the Princeton University professor and New York Times columnist, who will receive his Nobel prize this week.
"But the fact that we did have that Great Depression and have some economic analysis of how it happened, gives us some hope of avoiding a repeat," he said.
While supporting government spending to rescue the US economy, Krugman is more skepticak about bailing out US car makers.
There is, he said, "a correct lack of willingness to accept (responsibility for) the failure of a large industrial sector … in the midst of a very, very severe recession."
"In the end these companies probably will disappear."
Krugman, who supports massive government spending on infrastructure and public works programs to revitalize the US economy, said Washington should also learn from Japan\’s economic crisis in the 1990s.
"The experience of Japan in the 1990s was that indeed government spending, while it may not produce a permanent cure, can greatly alleviate the pressures on the economy," he said.
In Brussels, the European Commission said Sunday that "good progress" is being made on an international package to help Latvia cope with an economic slump, avoiding a devaluation of the Baltic nation\’s currency.
The commission said that the package under discussion would allow for Latvia to keep its currency pegged to the euro, instead of devaluing, but that the country would have to make other tough changes to secure loans.
Last month, the IMF and the EU said they stood ready to offer financial aid to Latvia after the global financial crisis hit the country hard.
Germany may grant its central bank powers to guarantee inter-bank loans in a bid to enourage more takers for the government\’s banking rescue plan, German press reports out Monday say.
Bundesbank President Axel Weber proposed the idea to the government, the financial daily Handelsblatt reported, citing sources close to both the central bank and the government.
The weekly news magazine Der Spiegel reported that the role of guarantor might be carried out either by the Bundesbank or by the KfW bank, the state\’s financial arm.
And Saudi Arabia\’s grand cleric on Sunday told Muslims on the hajj pilgrimage that the global financial crisis stems from ignoring God\’s rules and allowing "riba" or usury, prohibited in Islam.
"Today we watch as this financial crisis unfolds and some companies and banks go bankrupt," grand mufti Abdul Aziz al-Sheikh said at the Namera mosque, where prophet Mohammed prayed while making the pilgrimage.
"This is the result of ignoring God\’s rules. Muslims must abide by God\’s rules, and build their economies accordingly," Sheikh told the faithful before midday prayers.