The U.S. economy and the global economy

President-elect Barack Obama in a recent speech warned about the need for proper action in addressing the nation’s economic troubles. Obama says that swift, bold, government action is the nation’s best short-term hope to reverse the economic downturn.

"The World" anchor Lisa Mullins speaks with BBC business correspondent Andrew Walker, and Mauro Guillen, of the University of Pennsylvania’s Wharton School, about international reaction to President-elect Obama’s plan for the economy.

Walker’s take on Obama’s plan: "What really is strikingly new is the sheer scale of the deficit that the U.S. Federal Government is going to land itself with. And that may well make a useful contribution to generating a recovery … but it’s going to leave us with some other, more difficult questions to deal with farther down the road, like just how on earth is the U.S. government going to borrow all this money. It’s been heavily reliant on, for example, Asian Central Banks … over the course of last decade or so — are they going to be willing to continue stepping up and providing the even larger sums of money that are going to be needed?"

According to Guillen, there is still much to be determined: "There’s a lot of question marks, and this is why I think the next two or three weeks are going to be crucial in terms of watching and following the discussions in Congress as to exactly how the country is going to pay for this stimulus package."

As to how Obama’s plan for America impacts the rest of the world, Walker says: "Clearly a strong and viable American banking system is important for the health of financial systems around the world, and … some of the specific spending programs that we will see in terms of infrastructure and so-forth will predominantly be about American jobs; but tax cuts — things that benefit consumers just in terms of getting more money into their pockets — a lot of it will be spent on the products of American business, but a lot of it will also be spent on imports."

Guillen adds: "The U.S. dollar continues to be the most important reserve currency. So it is extremely important for the well-functioning of the global economy that the U.S. banking system and the financial markets actually overcome the current turmoil, and we start seeing a light at the end of the tunnel in terms of how the system is going to be … reorganized and how the financial system is going to be regulated from now on."

More "The World."