Nouriel Roubini isn’t all negative.He also offers positive, constructive ideas on how to save the U.S.
In a paper called The Way Forward, which he published alongside Daniel Alpert, Westwood Capital; Robert Hockett, Professor of Law, Cornell University, he spells out a vision on how to save the economy.
First he walks through the crisis, which by now is pretty well understood: A massive credit bubble has left the economy with a huge debt overhang, draining demand, and causing record unemployment and low wages.
The solution basically boils down to three things, according to the paper (their words).
First, as Pillar 1, a substantial five-to-seven year public investment program that repairs the nation’s crumbling public infrastructure and, in so doing, (a) puts people back to work and (b) lays the foundation for a more efficient and cost-effective national economy. We also emphasise the substantial element of “self-financing” that such a program would enjoy, by virtue of (a) massive currently idle and hence low-priced capacity, (b) significant multiplier effects and (c) historically low government-borrowing costs.
Second, as Pillar 2, a debt restructuring program that is truly national in scope, addressing the (intimately related) banking and real estate sectors in particular – by far the most hard-hit by the recent bubble and bust and hence by far the heaviest drags on recovery now. We note that the worst debt-overhangs and attendant debt-deflations in history6 always have followed on combined real estate and financial asset price bubbles like that we have just experienced. Accordingly, we put forward comprehensive debt-restructuring proposals that we believe will unclog the real estate and financial arteries and restore healthy circulation – with neither overly high nor overly low blood pressure – to our financial and real estate markets as well as to the economy at large.
Third, as Pillar 3, global reforms that can begin the process of restoring balance to the world economy and can facilitate the process of debt de-levering in Europe and the United States. Key over the next five to seven years will be growth of domestic demand in China and other emerging market economies to (a) offset diminished demand in the developed world as it retrenches and trims back its debt overhang, and (b) correct the current imbalance in global supply relative to global demand. Also key will be the establishment of an emergency global demand-stabilisation fund to recycle foreign exchange reserves, now held by surplus nations, in a manner that boosts employment in deficit nations. Over the longer term, we note, reforms to the IMF, World Bank Group, and other institutions are apt to prove necessary in order to lend a degree of automaticity to currency adjustments, surplus-recycling, and global liquidity-provision.7
You can download the full paper here.
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