As politicians debate on whether to extend the Bush tax cuts and, if yes, to who, income inequality has been brought to the spotlight not just as a social plight but also as a structural impediment to growth that should be tackled—not least by repealing the tax cuts.
The flaming debate on how to steer the economy forward and avoid America’s “Japanification” has been dominated by two seemingly irreconcilable camps:
On one hand we’ve got the demand-side guys, who claim that Japan’s “lost decade” of the 1990s was the result of a spineless government policy reaction to the post-bubble reality… ergo the US can avoid becoming Japan by keep on stimulating itself with fiscal and monetary measures until private demand recovers.
I don’t know if it’s just me, but there is something disturbing about the recent market behavior. If one were to proxy the state of the (real) world with the stock market index, one would have to conclude that consumers, businesses and governments have turned into schizophrenics.
Reading through Nouriel Roubini’s new book, “Crisis Economics”, is like tasting a sample of what Nouriel does best: Explain economics in such straightforward English that makes the intricacies of the dismal science feel like an effortless walk in the park.
They say “do not believe anything until it’s been officially denied”. Just last Thursday, ECB President Jean-Claude Trichet categorically denied that the ECB had discussed buying government bonds of peripheral eurozone members.
One counterpoint I often hear about the renminbi’s role in rebalancing China’s economy is “but hey, look at Japan: It’s had a flexible exchange rate for years and, yet, its growth is still reliant on external demand”.
Back in August 2008, Hank Paulson, then US Treasury Secretary, went to Congress to request the mandate for a potential financial backstop of Fannie Mae and Freddie Mac, in the event of a loss in market confidence.