U.S. economist urges G20 summit to address "too-big-to-fail" issue

by Xinhua writer Liu Hong

PITTSBURGH, the United States, Sept. 23 (Xinhua) -- The G20 summit must address the "too-big-to-fail" issue in the banking system in order to avoid a repeat of the financial crisis, said an American economist during an interview with Xinhua here in Pittsburgh, a city chosen as the venue for the upcoming Group of 20 summit.

"The most important change for the United States and many other countries is to eliminate too-big-to-fail in the banking system," said Allan H. Meltzer, a professor of Political Economy with Carnegie Mellon University. He warns if the problem is not appropriately tackled, it will be hard to avoid a repeat of the current financial crisis in the future.

According to Meltzer, the present financial system is one in which bankers make the profits and the public takes the losses. Since the financial systems are too big, there is no enough money in economies to pay for the losses once they fail.

Among other things such as economic recovery and global warming, financial sector reform has risen to the top of the G20 agenda during the two-day summit. Meltzer predicts G20 leaders may form some kind of consensus on the issue.

Meltzer also predicts the economic recovery will occur in this quarter, but the growth will remain at a slow rate, below the average of the last 30 or 40 years. Besides, there will be a period of very fluctuating growth ahead.

"It would be good in the third quarter, maybe not so good in the fourth quarter. It will be up and down but along a very low growth rate," said Meltzer.

Warning against trade protectionism looming in several countries in the world including the United States, Meltzer says free trade has produced more increases in living standards around the world than anything that has happened in human history, so "it would be a shame if the U.S. backs away from free trade."