In this moment, living through what is clearly the worst financial disaster since the Great Depression, it’s hard to really internalize what has happened, what will happen.
I’ve written about Nouriel Roubini before on this blog. Basically, he’s been the most vocal bear about this economic catastrophe since 2005 and everything he’s warned us about has come to pass. In fact, it may be worse than his worst predictions.
The world is at severe risk of a global systemic financial meltdown and a severe global depression
It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:
– another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
– a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
– a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
– massive and unlimited provision of liquidity to solvent financial institutions;
– public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
– a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
– a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
– an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.
Interview with Tech Ticker: Risk of a Systemic Financial Crisis and a Severe Recession is Rising
His recent recommendations and interviews on Tech Ticker are worth watching.
I’ve embedded the Roubini interviews here:
No Quick Fix: Roubini Forecasts Worsening Economy, 2-Year Recession
Fire Paulson, Bernanke, and Spend Like Mad: Advice for the Next President
Roubini: Rate Cuts Reduce Crash Risk, But Dow 7,000 Likely ‘Sometime Next Year’
Another Big U.S. Bank Failure Could Happen, Warns Roubini