Economics

We have just received RGE Monitor's (Nouriel Roubini) Newsletter, dated October 9, 2008. Nouriel Roubini's (Professor of economics at New York University's Stern School of Business) major viewpoints are as follows:

• The world is at severe risk of a global systemic financial meltdown and a severe global depression
• The U.S. and advanced economies’ financial systems are now headed towards a near-term systemic financial meltdown
• a collapse of the shadow banking system (non-regulated financial players such as hedge funds) is possible
• We have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies
• There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies
• Even the better performing emerging market countries – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing
• 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 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

• The time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings