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Nouriel Roubini: The Financial Times recently interviewed economist Nouriel Roubini regarding the current US housing market problem and the potential for an extended US recession. Roubini addresses the outlook of the US economy, mortgages, potential policy action—The Frank-Dodd bill, Fed policy, and the outlook of financial markets.
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Survey by Wall Street Journal: Economists are now debating the extent of the recession rather than its existence. Recent statistics seem to confirm concerns.
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Global Must Read Articles
Deflation is the financial threat that might catch us unaware. ++ Relief from high food and oil prices is pleasant, but extreme price drops could signal economic havoc. ++ For now, falling prices will suppress inflation (5% in the US and 9% in Asia in 2008), and service industry prices are less volatile than raw goods, providing economic stability. ++ Ultimately, deflation threatens loan
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A US recession is inevitable but stopping global downturn should be political leaders’ top priority. ++ Expansionary policies by the surplus economies of Asia and the Middle East could offset demand decline. ++ Coordinated expansion should include policy that prevents big banks from withdrawing credit overseas and swap lines between the US, EU, Japan and all main emerging markets. ++ The
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The demise of the shadow banking system began last week. ++ This is the financial crisis of the century. ++ Shadow banks are not protected from bank runs, as commercial banks are. ++ A run on hedge funds is highly probable. ++ If these institutions are to be government-insured, they will need regulation in order to avoid any moral dilemma implications. ++ A “severe” US recession is
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Even though the European Central Bank reassures the investors that the euro has great prospects, business activity on the Old Continent is falling and consumer confidence is plummeting. ++ On Friday, the euro had its worst day against the dollar in 4 years and there are reasons to believe this was not a temporary blip, but the beginning of a trend. ++ Analysts were so focused on American economic
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After 1945, the US was clearly the world’s leader but it took its supremacy for granted and became complacent. ++ Since then, the US has become dependent on foreign oil and relied on debt to finance its economy. ++ American students are behind while universities fill with foreigners. ++ Leadership in technology and entertainment does not provide enough domestic jobs. ++ To reverse this
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With European inflation at its highest ever since the introduction of the euro, many countries are tightening their credit reins in an effort to curb inflation. ++ The world’s central banks are slowly realizing the magnitude of the inflationary threat. ++ It is expected the European Central Bank will raise its interest rates tomorrow, US Federal Reserve also faces greater pressure to raise
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A recent Ipsos Mori poll suggests a gradual loss of interest in the issue of climate change. ++ The specter of recession intensifies political pressure to abandon green policies. ++ Governments try to save the economy and the planet at the same time though these two aims are contradictory. ++ They base their policies on the false assumption that there is a cheap alternative to a green economy. ++
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The US dollar was for a long time the leading global currency against which all other foreign currencies were measured. The downside of this is that as a result, the USA has accumulated a huge trade deficit. In 2006, foreign goods and services purchased by Americans were worth 600 billion USD more than the goods and services they sold abroad. Every day, the US needs to draw on seven billion
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The Fed is undermining global confidence by flooding the economy with new dollars while it should in fact be pursuing direct and targeted intervention. ++ Since US global purchasing power is used for humanitarian, economic or military purposes, a further fall of the dollar will damage US political influence. ++ The rise of transactions in Euros neuters US ability to control financial flows to
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Critics of current US foreign policy point to the Iraq war for the current economic slump. ++ New indicators suggest otherwise. ++ A general rise in material and commodity prices running parallel to high oil prices, reflects growth in Asian consumption. ++ The effects of high demand and low supply, coupled with unsound borrowing in the US, dwarf the negative effects that Iraq has had on the
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The IMF might have prevented the US crisis if it had detected mortgage market vulnerability sooner. ++ Since IMF governance is organized according to the “money for influence” model - most influential members have most leverage - US policies and regulations were not scrutinized or criticized. ++ IMF can only effectively supervise and secure financial stability if power is distributed evenly to
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The differences in transatlantic mortgage systems are causing the Fed and the ECB to deal with housing crisis in contrasting ways. ++ While the Fed keeps cutting interest rates to make up for the huge losses in capital of US banks, the EU is focusing on inflation control. ++ The Fed’s mandate is to guarantee financial and monetary stability - a commitment which may eventually require the
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The Bear Stearns collapse forces Wall Street to finally face reality and end the culture of easy lending. ++ US recession combined with a Democratic president in November will spell protectionist legislation. ++ The biggest threat the American financial crisis will have on the rest of the world will be politicians blaming foreigners. ++ A rebalancing between the dollar and Asian currencies will
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As a reserve currency, the US dollar’s value was only sustainable while the economy was growing. ++ As many economists expect a recession, the Fed is moving aggressively to pump more liquidity into the US banking system. ++ This and increasing trade protectionism are adversely sustaining consumption, hindering capital formation and entrepreneurship, and halting the creation of wealth necessary to
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Soaring oil prices are the result of underestimation of demand, overestimation of supply, depressed production outside OPEC, and the latter’s recent regulation of supply. ++ OPEC’s actions are preventing using oil prices to correct economic slowdown and the drop in purchasing power. ++ Without curbing imports and diversifying its sources of supply, the US
will not be free of the grip of this
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It is wrong to think that China has supplanted America in driving the global economy - the US still contributes 5 times more to the world’s GDP than China. ++ Banks around the world are learning that the US has lived beyond its means and debt may not be repaid. ++ Though a US tax cut may help, it won’t be enough to prevent recession. ++ The extent of the damage may not be known until 2009.
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The US economy is facing a post-bubble recession rather than a cyclical downturn. ++ As homebuilders and consumers - a sector representing 78% of GDP, are being hit the hardest, the Fed’s monetary easing policies which favor consumption are proving ineffective. ++ The focus should be on exports and infrastructure spending instead of attempts to maintain unsustainably high rates of personal
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The global credit crisis calls for cautious monetary policy. ++ Central banks need to take the risks of inflation seriously and avoid unnecessary interest-rate cuts. ++ The ECB should serve as a model for other central banks - it has ignored calls for interest-rate cuts and instead responded to the credit crunch by “opening wide the discount window and performing pragmatically its role as lender
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If the US continues pressing China to float its currency, Beijing will start selling its dollar reserves, warns Ambrose Evans Pritchard of the Telegraph . Although Chinese officials assert that “China does not want any undesirable phenomenon in the global financial order”, such action could trigger a dollar crash as well as a spike in US bond yields. The combined
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The newest tale of woe among American investment banks is the housing market, according to The Economist. Some analysts on Wall Street predict that the housing bubble is on the verge of collapse, and point to the “subprime mortgage market” as the culprit. These loans, given to potential homeowners with poor credit at little or no money down, provide initial low “teaser” interest rates, which
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