S. Gurumurthy From url
http://tinyurl.com/2g49rlThe title is not to tease the reader. If the ongoing debate initiated by Martin Wolf, associate editor and chief economic commentator in Financial Times and Prof. Nouriel Roubini, professor of economics at New York University, is to be given a title, that could be this.
Wolf, whose Wednesday columns in FT are discussed by fifty of the most influential economists of the world, is a mainline economic thinker. Roubini, who has held different positions in US government, now occupies important seats in academia and runs Roubini Global Economics
Monitor, an influential Web site.
In July 2006 itself, Roubini had predicted that US was in recession. But, like others had, Wolf had ignored Roubini for nearly 20 long months. But, as the unfolding events were proving Roubini right, Wolf wrote that Roubini deserved to be taken seriously.
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Roubini estimates $1 trillion loss in the meltdown. “Is this scenario at least plausible?” asks Martin Wolf, and answers, stunningly, “It is”. If this “nightmarish scenario” lasts for six quarters, Roubini warned on February 5, it would be too late for other nations to devise ‘policies’ to ‘de-couple’ from US.
But can the US Fed head off this danger? Roubini says ‘no’ for many reasons. Two of them are important. One, the Fed can deal with liquidity, but, not solvency, which is the real issue. Two, the transactions-oriented financial system itself is in deep crisis. This second one is critical and needs some explanation.
Derivatives in control
The world of finance which Roubini calls as transaction-oriented system looks a bizarre, dollar jungle now. A peep into this mind-boggling labyrinth will unnerve even the most diehard among optimists.