by Calculated Risk on 9/02/2009 08:21:00 PM

From The Times: Gordon Brown’s $1 trillion global rescue package unravels

Alistair Darling is scrambling to plug a gaping hole in the $1.1 trillion global rescue package agreed by G20 leaders in London — hailed at the time as Gordon Brown’s biggest success.

Some countries, led by Germany, are even calling for the bailout to be scaled back amid fears that it risks burdening economies with too much debt and could encourage inflation.

The breakdown of unity reflects the different speeds at which countries are emerging from recession and conflicting views about the outlook for the global economy.

Although discussing a policy exit strategy makes sense, it would seem premature to scale back the package. One or two quarters of GDP growth isn't a recovery.

Besides, in the August Fed minutes released today, the U.S. is clearly relying on foreign economic growth to offset domestic weakness:

Consumer spending had been on the soft side lately. The new estimates of real disposable income that were reported in the comprehensive revision to the national income and product accounts showed a noticeably slower increase in 2008 and the first half of 2009 than previously thought. By themselves, the revised income estimates would imply a lower forecast of consumer spending in coming quarters. But this negative influence on aggregate demand was roughly offset by other factors, including higher household net worth as a result of the rise in equity prices since March, lower corporate bond rates and spreads, a lower dollar, and a stronger forecast for foreign economic activity.