Nouriel Roubini: New great depression — that is what we risk now

[marmar]

THE latest economic data suggest that recession is returning to most advanced economies. What can be done to minimise the fallout of another economic contraction and prevent a deeper depression and financial meltdown?

First, we must accept that austerity measures have recessionary effects on output. So, if countries in the euro zone’s periphery are forced to undertake fiscal austerity, countries able to provide short- term stimulus should do so and postpone their own austerity efforts.

Second, while monetary policy has limited effect when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labour, real estate, and commodity markets feeds disinflationary pressures.

Third, to restore credit growth, euro- zone banks and banking systems that are undercapitalised should be strengthened with public financing in a Europe -wide programme. To avoid an additional credit crunch as banks deleverage, banks should be given some short-term forbearance on capital and liquidity requirements. ..........(more)

The complete piece is at: http://www.businessday.co.za/articles/Content.aspx?id=154035

[mike_c]

1. strengthening banks by "public financing" is not the solution....

Something better growing from the ashes of capitalism-- now THAT'S a solution!

[abelenkpe]

2. Roubini says

"Sixth, the reasons for advanced economies’ high unemployment and anaemic growth are structural, including the rise of competitive emerging markets. The appropriate response to such changes is not protectionism. Instead, the advanced economies need a medium- term plan to restore competitiveness and jobs via huge new investments in high- quality education, job training and human-capital improvements, infrastructure, and alternative energy."


Yeah, wish the US would do that....

[jtuck004]

4. That would take vision and discipline, not the output of the myopic weasel-brains we have now. /nt

[Owlet]

3. I don't get it

"Second, while monetary policy has limited effect when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labour, real estate, and commodity markets feeds disinflationary pressures."

If, as he says, the problem is 'excessive debt", then why in the world is his solution to the problem to ease credit? Doesn't excessive debt mean that too much credit has already been extended? Do you cure an addicted person by giving him access to more of that to which he is addicted?

Roubini used to make sense to me, sort of. Now he sounds more and more like Alan Greenspan. If you can't bewilder them with brilliance, then baffle them with bullshit.

Disclaimer: I was an English/History major many years ago - not an economist, and will not be offended in the least to be shown to be dead wrong. :)

[jtuck004]

5. Paradox of thrift. As long as we keep cutting the legs out from under

people in an attempt to save, we reduce the capacity to overcome the debt load through growth and planning for a different future.

It becomes a vicious circle as we circle the drain, eventually will lead to decades of increased poverty and hunger, the wasting of vast amounts of human resources. The only people that will REALLY profit are those with international connections who tap into the developing nations. They will leave the rest in the dirt, maybe because we would rather fight with each other while sniffling around looking for affirmation from our "betters". (That's "we" in the larger sense of the "schooled" population, not the people that I admire here).