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World Bank Chief Zoellick: US Isn’t ‘Out of Woods’ Yet

Tuesday, 01 May 2012 12:40 PM

The United States may be in better shape than Europe but the country isn't "out of the woods" yet, says outgoing World Bank President Robert Zoellick.

The Federal Reserve has propped up the country via interest-rate cuts and through extraordinary monetary tools such as quantitative easing, which are bond buybacks from banks designed to flood the economy with liquidity to encourage investment and hiring.

The White House and Congress, however, need to do more to ensure lasting recovery.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

"I think in the U.S. so much of the focus has been on the monetary policy, which were extraordinary, I'm not disagreeing with them but you can't rely on those alone. You're going to have to deal with fiscal issues," Zoellick tells CBNC.

At the end of the year, the Bush tax cuts are set to expire while automatic spending cuts are set to kick in.

Many economists fear the combination of taxing Americans more while cutting spending to government programs will suck hundreds of billions out of the economy and cut into growth, a scenario described by many economists as a fiscal cliff.

Add to that, the country's infrastructure is in need of repair, education needs to improve and energy supply broadened and diversified.

While the United States may not be teetering on the brink of recession as is Europe, it can't let its guard down, either.

"You're also going to have to deal with what makes the United States more competitive over the future, the so-called structural agenda, issues on energy, bringing private capital into the infrastructure sector, some of the things on the education side," Zoellick says.

"While the United States has better growth than Europe, it is also not out of the woods. This fiscal cliff at the end of the years add as new degree of uncertainty for the United States."

Some estimates see the fiscal cliff sucking close to $7 trillion out of the U.S. economy over a decade, although it will narrow deficits.

Still, most agree the economy cannot handle the initial shock while recovery remains tepid.

Federal Reserve officials have said the U.S. central bank can't help fight this battle, adding it's up to Congress to tackle it in an election year.

Brinkmanship and partisan bickering almost threw the country into default in 2011, when the country approached its debt ceiling.

Congress approved lifting the limit at the last moment, although some experts point out the gravity of the fiscal cliff is such that both sides will come to an agreement quickly.

"I think coming up to the edge of Niagara Falls in the row boat might finally force Congress and the President to do something," says Keith Poole, a professor at the University of Georgia who has studied political polarization, according to the AFP newswire.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.



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