Archive for September, 2009
The worst contraction in the housing sector since the Great Depression, now in its fourth year, shows signs of reaching a bottom. Indicators of both demand and supply have posted modest recoveries from the record lows reached in H1 2009, though they remain sharply depressed below historical levels. In a recent research note RGE’s Prajakta […]
This week we review the critical issues G20 leaders will focus on when they meet this week in Pittsburgh. The coordinated and unilateral policy actions taken by these countries and others—including aggressive fiscal and monetary stimulus, increased funding to the IMF, and backstopping financial systems globally—helped stop the economic freefall. The economic outlook has improved since their last meeting in April, but the challenge of navigating towards sustainable growth is equally difficult, and the coming period brings the risk of policy missteps as countries begin to plan their exit strategies. On the eve of the G20 meeting, there remain significant divides over the timing and scope of exit strategies from monetary accommodation, the path towards fiscal consolidation, and the drive for financial regulatory reform.
As RGE highlighted recently, financial regulation will continue to be a key part of the leaders’ debate. New capital requirements seem more likely, in the vein of suggestions raised by the Bank of International Settlements (BIS) and the Financial Stability Board. The recent meeting of the G20 finance ministers and central bank governors supported such moves. The meeting broke, however, without an agreement on compensation reforms to avoid a procyclical focus on short-term returns, a policy championed by the European Union. The issue of banks’ balance sheets still being impaired also needs to be addressed.
Desperately seeking an exit strategyAnthony Jenkins/The Globe and Mail
Getting the plan right is crucial. Errors would heighten the threat of a double-dip recessionFrom The Globe and MailThere’s a general consensus that the massive monetary easing, fiscal stimulus and support of the financial system undertaken by governments and central banks around the world prevented the deep recession of 2008-2009 from devolving into the Second Great Depression.Policy-makers were able to avoid a depression because they had learned from the policy mistakes made during the Great Depression of the 1930s and Japan’s near depression of the 1990s. As a result, policy debates have shifted to arguments about what the recovery will look like: V-shaped (rapid return to potential growth), U-shaped (slow and anemic growth) or even W-shaped (a double dip). During the global economic free fall between last fall and this spring, an L-shaped economic and financial Armageddon was still firmly in the mix of plausible scenarios.But the crucial policy issue ahead is how to time and sequence the exit strategy from this massive monetary and fiscal easing. Clearly, the current fiscal path being pursued in most advanced economies – the reliance of the United States, the euro zone, the United Kingdom, Japan and others on very large budget deficits and rapid accumulation of public debt – is unsustainable.
Forbes.com – Roubini: One Year After Lehman (Click for VIDEO)
CNBC – Roubini on Lehman, Global Financial Crisis (Click for Video and Report)
FT.com – Ambrosetti forum 2009: The Rising Risk of a Double Dip
From Reuters: Roubini: “U-Shaped” Recovery is Possible
From Bloomberg: U.S. Dollar Will Weaken, Currency Crash Possible, Roubini Says
The text for these reports is below:
CNBC – Bears on Parade (Click for Video)
CNBC – Nouriel Roubini, RGE Monitor chairman, thinks the bank balance sheet is still the biggest threat to recovery [4:41]
Ian Bremmer and Nouriel Roubini: Don’t Expect the U.S. and China to Form a ‘Strategic Alliance’ Anytime Soon – WSJ.com
From the Wall Street Journal
The Yin and Yang of U.S.-China Relations
By Ian Bremmer and Nouriel Roubini
American and Chinese officials said all the right things during this summer’s inaugural round of their Strategic and Economic Dialogue. President Barack Obama pledged to “forge a path to the future that we seek for our children.” Chinese State Councilor Dai Bingguo wondered aloud whether America and China can “build better relations despite very different social systems, cultures and histories.” He answered his own question, in English, with a “Yes we can.”
They can, but they probably won’t. Yes, Mr. Obama will visit China in November. But when it comes to international burden-sharing, Washington is focused on geopolitical headaches while China confines its heavy-lifting to geoeconomic challenges. The two sides have good reason to cooperate, but there’s a growing gap between what Washington expects from Beijing and what the Chinese can deliver.