The members of the G7 admit that the global economy is in real trouble. Now they are asking themselves whether they can do anything about it.
Officials at the G7 summit did say that interest rates will have to come down. An official from the European Union said that taxes could be cut further. Many in the private sector don't think this can offset problems in the credit markets. "The problems are going right through all parts of the financial markets and there's not much the G-7 can do about this,'' said Gilles Moec, an economist at Bank of America Corp. (NYSE: BAC), quoted by Bloomberg.
To say that large governments cannot dampen the downturn is cynical. Whether they will act quickly is a very fair question to raise. A sharp cut in personal and corporate tax rates and more drops in interest rates are likely to cause a pick-up in economic activity. It is also almost certain to cause inflation, but that may be the price that must be paid to keep a severe recession at bay.
The slowness of governments is the enemy now. If the G7 countries can't get tax and rate stimulation packages in place during the current quarter, it will almost certainly be too late.
Douglas A. McIntyre is an editor at 247wallst.com.
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