The coordinated global rate cut was helpful but not enough, Nouriel Roubini said on Yahoo TechTicker this morning (video coming soon). The central banks should have cut at least 100 basis points, Roubini says. World governments should also immediately band together and put together a comprehensive plan:
- Guarantee all bank deposits (not just up to $250,000, not just in US)
- Triage the banking system: recapitalize survivors with equity injections, let the rest die
- Dump Bernanke and Paulson, who the public has lost confidence in
- Get ahead of the crisis instead of looking panicky and reactive
- In US, put together $300 billion fiscal spending plan (a new New Deal) to begin to replace the coming collapse in private spending
None of this will stave off a severe recession, Roubini says. It will merely head off a collapse of the financial system. Roubini thinks the stock markets will fall 50% from the peak (vs. the current 35% and his original forecast of 40%), which actually doesn’t sound so bad right now. Inflation is no longer a risk, says Roubini: In six months, we’ll be worried about global deflation.