You've all heard his name: Nouriel Roubini, professor at New York
University, formerly known as Dr. Doom for having predicted what's
now reality. Yesterday he said we are in sight of a systemic collapse
and a global depression and called for a list of measures to be taken
at the world level (including massive public works projects). Copy of
his conclusions below. This morning (EU time) Japan proposes raising
capital from Asian and Arab high-rollers for the support of emerging
markets, to be distributed with IMF assistance. Meanwhile Yamato Life
insurance tanks and the Nikkei plunges. At the American Treasury
they are talking about guaranteeing ALL bank deposits (not just up
to $250,000) and using a clause of the Paulson Plan to directly
recapitalize the banks (therefore dropping the original idea of
buying the toxic waste bit by bit). In other words: huge confusion
at Treasury. On the level of the real economy, the impossibility of
selling commercial paper for short-term loans or even using letters
of credit between banks is causing some corporations to cease certain
activities, notably transnational shipping. This would be the advance
warning sign of the global depression announced by Roubini. With
the World Bank/IMF meetings in Washington this weekend and Bush's
rich-country crisis-cell meeting tomorrow, it seems likely we will see
at attempt at concerted global action over the weekend. Monday there
may be only one possible world. Or chaos!
Here is Roubini's text:
...At this point severe damage is done and one cannot rule out a
systemic collapse and a 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.
At this point anything short of these radical and coordinated actions
may lead to a market crash, a global systemic financial meltdown and
to a global depression. 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.
http://www.rgemonitor.com/roubini-monitor/253973/the_world_is_at_sever
e_risk_of_a_global_systemic_financial_meltdown_and_a_severe_global_dep
ression
