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G20: Paving the way for a new Great Depression?

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The goals set at the just-concluded G20 summit in Toronto are not exactly a return to Herbert Hoover-style austerity, point out other analysts. There is enough wiggle room in the wording of the agreement for nations to go their own ways, within limits.

The G20 endorsed a goal of cutting government deficits in half by 2013 and stabilizing the ratio of public debt to gross national product by 2016. But the goal was expressed as an expectation, not a firm deadline. And the final communiqué said deficit reduction would be “tailored to national circumstances.” In other words, the US and other nations still have the flexibility to implement vastly different national policies.

“The communiqué produced by the G20’s Toronto summit on June 27 mustered all the blandness that is typical of such documents,” writes Sebastian Mallaby, a senior fellow for international economics at the Council on Foreign Relations, in an analysis of the summit’s outcome.

President Obama, for his part, said he was in agreement with the need to reduce debt over time. But he and other US officials remain at least as concerned about continued efforts to stimulate job growth.

The problem for the White House is that Congress is increasingly leery of spending money on any new large programs. That’s why legislation that would extend unemployment benefits, among other things, is currently stuck in the Senate.

“America is itself – through congressional inaction – on the verge of reversing its domestic fiscal stimulus,” writes Jacob Funk Kirkegaard, a senior fellow at the Peterson Center for International Economics, in his own G20 analysis.

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