Roubini- How To Prevent a Depression

[n2doc]

By Nouriel Roubini
Posted Monday, Sept. 19, 2011, at 12:29 PM ET

The latest economic data suggest that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Bros. in 2008. The risks of an economic and financial crisis even worse than the previous one—now involving not just the private sector, but also near-insolvent governments—are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown?

First, we must accept that austerity measures, necessary to avoid a fiscal train wreck, have recessionary effects on output. So, if countries in the Eurozone's periphery such as Greece or Portugal are forced to undertake fiscal austerity, countries able to provide short-term stimulus should do so and postpone their own austerity efforts. These countries include the United States, the United Kingdom, Germany, the core of the Eurozone, and Japan. Infrastructure banks that finance needed public infrastructure should be created as well.


Second, while monetary policy has limited impact 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 mistaken decision to hike interest rates. More monetary and credit easing is also required for the U.S. 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, labor, real estate, and commodity markets feeds disinflationary pressures.

Third, to restore credit growth, Eurozone banks and banking systems that are undercapitalized should be strengthened with public financing in a European Union-wide program. To avoid an additional credit crunch as banks deleverage, banks should be given some short-term forbearance on capital and liquidity requirements. Also, since the U.S. and EU financial systems remain unlikely to provide credit to small and medium-size enterprises, direct government provision of credit to solvent but illiquid SMEs is essential.

more
http://www.slate.com/id/2304110/

[ChairmanAgnostic]

1. Take lots of anti-depressants, and have a friend

keep an anti-suicide watch on you.

Given how the GOP has sabotaged this administration, often with the misdirected appeal to bi or post-partisan politics from the President, everyone will need to be medicated.

[banned from Kos]

2. The bank hating crowd here will have to dump Roubini after this part

"banking systems that are undercapitalized should be strengthened with public financing".

He doesn't say if what role the ECB should play.

[ixion]

3. I don't dump someone I generally agree with just because I may not always agree.

Only fickle political hacks do that.

[banned from Kos]

4. I agree with Roubini 100% on this Slate article

Its basically the Bernanke/Geithner plan from 2009, fwiw.

[ixion]

5. I agree with parts of it, not all of it

particularly the part about giving banks more money when they've given no indication they would use if for the common good. I also disagree with the part about the government providing loans to small/medium sized businesses, because I've seen the SBA in action.