Robert Wade argues that national income inequality and international payments imbalances played a significant role in the financial crisis, and if these issues are not addressed, the problems are likely to reoccur:

Who are the Laggards and who the Virtuosi in the current wave of budget cuts in Europe? What lesson can we draw from the evidence? How should we assess the distribution of budget cuts among European countries? Many observers  have focused  on  country specific issues such as  debt sustainability,  see for example the recent IMF Fiscal Monitor 2010, or on  the likely effects of budgets cut on the recovery. The issue of the European distribution of cuts , however,  has not been addressed. This is hardly surprising:  unlike in the US, there is no European federal budget,  and the  Growth and Stability pact has nothing to say on the distribution of the burden of adjustment among member countries.  Yet as Europe gets more and more integrated and fiscal policy increasingly centralized, these questions are poised to become more relevant. 

 Brad DeLong reads Greg Mankiw and reaches the conclusion that:

Mankiw's broader point is that since we have seen nothing like this before except for the Great Depression, we should be humble and risk averse--and hence have the government stand back and wash its hands of the situation.

The rapid growth of current government expenditures in many countries is clearly behind the explosive increase in the ratio “government debt/GDP”.  From the BRICs to Southern Europe, economic analysts are beginning to discuss the conditions for a negative fiscal multiplier.

In other words, in spite of the famous identity Y = C(p) + I(p) + C(g) + I(g) + X – M, one might have many situations where an increase in C(g) financed by government bond issues has a negative impact on the other variables of the identity, including private consumption, private investment, Government investment and the current account balance surplus.

Over the last week two frontier markets-Ukraine and Kazakhstan- retracted their ambitions to venture into international debt markets with Eurobond issuances. In both cases, these are countries that are not in need of immediate cash, but they are emblematic of a recent trend in which frontier markets are still having trouble accessing global markets at a price they like. 

Monetary stability seems almost a given today, even taken for granted. It wasn’t always like that. Not so long ago, high and volatile inflation routinely raised its ugly head and threatened living standards. Some of us even remember those days! It wasn’t pleasant. But since then, an effective antidote has pretty much wiped out rampant price instability. Over the past three decades, better monetary frameworks have caused the level and volatility of inflation to fall sharply. These frameworks enshrined price stability as the main monetary policy objective, and provided independence and constrained discretion in the pursuit of this objective, often set out through formal inflation targets.

Turkmenistan has broken Russia's stranglehold on its gas exports by opening a pipeline through Uzbekistan and Kazakhstan to China. The country's president Gurbanguly Berdimuhamedov has just made his first trip to New Delhi where the Turkmenistan-Afghanistan-Pakistan-India natural gas pipeline project was discussed. Earlier this year a short pipeline was opened in order to increase exports to Iran, and gas is in the process of being identified for eventual export to Europe via a Trans-Caspian Gas Pipeline and the EU's Southern Corridor. The era of Russian control over the country's exports is over, and Ashgabat is taking care to make certain that it is not squeezed between Moscow and Beijing.

1. Background

The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed. Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.