economist, who predicted the crisis, Nouriel Roubini warns against too rapid collapse of anti-crisis measures.
Measures to mitigate the monetary policy, fiscal stimulus state's financial system, adopted by governments around the world, prevented a deep recession of 2008-2009. turned into a second Great Depression. Politicians have managed to avoid a depression, because they have learned from mistakes made during the Great Depression of 1930. and during the crisis in Japan in 1990-ies.
As a result, the debate about anti-crisis policy evolved in the debate about how to be a way out of recession: like the letter V (a quick return to growth), the letter U (slow and sluggish growth) or even W (double decrease). During the global economic downturn autumn 2008 and spring 2009, and figured among the apocalyptic scenario that resembles the letter L.
on the agenda now - what should be the strategy away from large-scale anti-crisis measures, in what sequence and at what speed should give them up. Obviously, the continuation of the policy, which now holds most of the developed economies - to increase the budget deficit and the rapid accumulation of public debt - a slippery slope.
huge budget deficits were partly financed by central banks, which in many countries lowered their interest rates to 0% (in the case with Sweden even lower) and dramatically increasedthe monetary base by means of infusion of liquidity into the financial system through central bank purchases of securities and mitigation of credit conditions. In the U.S., for example, the monetary base for the year more than doubled.
If nothing changes, the combination of too loose fiscal and monetary policy at some point lead to a financial crisis, rampant inflation and the formation of a new, dangerous bubble in assets and loans. Thus, the key issues of economic policy - where the output of the economy of excess liquidity and normalize interest rates and when to raise taxes and cut government spending (and in what combinations).
The biggest risk is that the strategy is a departure from the enabling fiscal and monetary policies will be inconsistent, because regulators would be blamed for what they do and for what they do not. If they have accumulated huge budget deficits, they must raise taxes, reduce costs and to sterilize excess liquidity as quickly as possible.
The problem is that most economic systems is only just reached the bottom, so turning off the budget and monetary stimulus too quickly - before the consumer demand is finally restored - they risk falling back into deflation and recession. Japan made the mistake in 1998-2000. As well as the United States in 1937-1939.
But if the government will maintain large fiscal deficits and continue to monetize them, increasing the national debt, then at some point - after the current deflationary factors sag - bond markets rise. When this happens, inflationary expectations rise, the yield of long-term state bonds will rise, mortgage rates and other rates will rise, and all can result in stagflation (inflation and recession).
So how do we calculate the square the circle of economic policy?
First, different countries have different abilities to maintain public debt, depending on their level of deficit, debt, credit history and credibility of their policies. Small economies with large deficits, growing national debt and the banks that are too big to fail and too big to save them from bankruptcy, in need of more rapid adjustment of fiscal policy. Otherwise, they will downgrade the fiscal and debt crisis.
Second, regulators should firmly promise to raise taxes and cut government spending (especially compensation), for example, in 2011 Later, when the recovery will be more energetic, improving consumer confidence will help to ease the tax policy to support economic recovery.
Thirdly, the organs that determine monetary policy should establish criteria for deciding when to stop injection of liquidity into the financial system and when normalize interest rates. Even if monetary incentives will be discontinued later than planned (when the recovery will be more energetic), the markets and investors in advance must be clarity about the parameters that determine the timing and speed of exit.
Choose the correct exit strategy from the anti-crisis policy is fundamentally important: serious errors in this strategy increases the threat of recession scenario double recession reminiscent of the letter W. And the risk of error is large, because of politics on economic decision-making in countries like the U.S. may force officials to delay difficult choices regarding the budget deficit.
In particular, the temptation to take advantage of inflation to reduce the real value of public and private debt can become insurmountable. In countries where an appeal to Parliament to raise taxes and cut spending is politically difficult, increasing the national debt and the subsequent inflation may become the path of least resistance.
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Three rules out of the crisis from Roubini
economist, who predicted the crisis, Nouriel Roubini warns against too rapid collapse of anti-crisis measures.
Measures to mitigate the monetary policy, fiscal stimulus state's financial system, adopted by governments around the world, prevented a deep recession of 2008-2009. turned into a second Great Depression. Politicians have managed to avoid a depression, because they have learned from mistakes made during the Great Depression of 1930. and during the crisis in Japan in 1990-ies.
As a result, the debate about anti-crisis policy evolved in the debate about how to be a way out of recession: like the letter V (a quick return to growth), the letter U (slow and sluggish growth) or even W (double decrease). During the global economic downturn autumn 2008 and spring 2009, and figured among the apocalyptic scenario that resembles the letter L.
on the agenda now - what should be the strategy away from large-scale anti-crisis measures, in what sequence and at what speed should give them up. Obviously, the continuation of the policy, which now holds most of the developed economies - to increase the budget deficit and the rapid accumulation of public debt - a slippery slope.
huge budget deficits were partly financed by central banks, which in many countries lowered their interest rates to 0% (in the case with Sweden even lower) and dramatically increasedthe monetary base by means of infusion of liquidity into the financial system through central bank purchases of securities and mitigation of credit conditions. In the U.S., for example, the monetary base for the year more than doubled.
If nothing changes, the combination of too loose fiscal and monetary policy at some point lead to a financial crisis, rampant inflation and the formation of a new, dangerous bubble in assets and loans. Thus, the key issues of economic policy - where the output of the economy of excess liquidity and normalize interest rates and when to raise taxes and cut government spending (and in what combinations).
The biggest risk is that the strategy is a departure from the enabling fiscal and monetary policies will be inconsistent, because regulators would be blamed for what they do and for what they do not. If they have accumulated huge budget deficits, they must raise taxes, reduce costs and to sterilize excess liquidity as quickly as possible.
The problem is that most economic systems is only just reached the bottom, so turning off the budget and monetary stimulus too quickly - before the consumer demand is finally restored - they risk falling back into deflation and recession. Japan made the mistake in 1998-2000. As well as the United States in 1937-1939.
But if the government will maintain large fiscal deficits and continue to monetize them, increasing the national debt, then at some point - after the current deflationary factors sag - bond markets rise. When this happens, inflationary expectations rise, the yield of long-term state bonds will rise, mortgage rates and other rates will rise, and all can result in stagflation (inflation and recession).
So how do we calculate the square the circle of economic policy?
First, different countries have different abilities to maintain public debt, depending on their level of deficit, debt, credit history and credibility of their policies. Small economies with large deficits, growing national debt and the banks that are too big to fail and too big to save them from bankruptcy, in need of more rapid adjustment of fiscal policy. Otherwise, they will downgrade the fiscal and debt crisis.
Second, regulators should firmly promise to raise taxes and cut government spending (especially compensation), for example, in 2011 Later, when the recovery will be more energetic, improving consumer confidence will help to ease the tax policy to support economic recovery.
Thirdly, the organs that determine monetary policy should establish criteria for deciding when to stop injection of liquidity into the financial system and when normalize interest rates. Even if monetary incentives will be discontinued later than planned (when the recovery will be more energetic), the markets and investors in advance must be clarity about the parameters that determine the timing and speed of exit.
Choose the correct exit strategy from the anti-crisis policy is fundamentally important: serious errors in this strategy increases the threat of recession scenario double recession reminiscent of the letter W. And the risk of error is large, because of politics on economic decision-making in countries like the U.S. may force officials to delay difficult choices regarding the budget deficit.
In particular, the temptation to take advantage of inflation to reduce the real value of public and private debt can become insurmountable. In countries where an appeal to Parliament to raise taxes and cut spending is politically difficult, increasing the national debt and the subsequent inflation may become the path of least resistance.
Litvitsky: Draft State Budget-2010 provides the basis for a fundamental debate about the prospects of
Dear landing
10 billion hryvnia in the construction and reconstruction of Ukrainian airports plans to invest the State …
Prices for sausages grow on 10-15%
Sausage want to earn extra money to enhance the fall in demand …
NBU puts into circulation new coins
National Bank of Ukraine: Ukraine will receive the fourth tranche of IMF
It wants to eat
catering told how should an ideal institution …
Fed prepares to inflation after the crisis
Steelmakers were suspicion
Litvin: Ukraine can provide food to 1 billion people