Massive efforts to support troubled financial institutions might end up increasing instability, by affecting the “precarious fiscal positions” of the United States and other countries.
The World Economic Forum, Geneva, Switzerland, presents that prediction in the 2009 Global Risks Report, a world risk assessment conducted by forum staffers with help from experts at Swiss Reinsurance Company, Zurich; Marsh & McLennan Companies Inc., New York; Zurich Financial Services Group, Zurich; and the Wharton School Risk Center, Philadelphia.
The authors of the report note that the United States is currently running a deficit equivalent to 4.6% of the country’s gross domestic product.
But the warning against excessive spending applies to Australia, France, Italy, Spain and the United Kingdom as well as to the United States, the authors of the report write.
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Trying to address immediate economic concerns without remedying the root causes could sow the seeds of new problems that may have a strong impact at a later date, the report authors warn.
Global equity values already have fallen an average of 50%, and there continues to be vicious circle involving declining asset values, write-downs and pressure on financial institution capital positions, the report authors write.