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Nouriel Roubini’s 8 steps on ‘how to prevent a depression’ Print E-mail

Sep 22, 2011 Michael Babad The Globe and Mail

Roubini's prescription

Nouriel Roubini believes the United States and the euro zone are "effectively in a recession now" and the world's leaders are running out of ammunition.

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In a recent article, the New York University professor, chairman and co-founder of Roubini Global Economics, who forecast the financial crisis, lays out eight ways to "prevent a depression."

1. Countries in a position to still take new stimulus measures - the United States, Britain, Japan, and Germany and others in the euro zone core - should do it and delay austerity plans.

2. The European Central Bank should reverse its "mistaken decision" to boost interest rates, while others such as the Federal Reserve, Bank of Japan, Bank of England and Swiss National Bank do more. (This was written before the Fed's latest action.)

3. The European Union should strengthen its banks with public money, and spread money to small and mid-size businesses.

4. A fatter bailout fund, eurobonds or "massive ECB action," meaning a huge liquidity provision for solvent governments, is needed "to avoid a disastrous run on these sovereigns," notably Italy and Spain.

5. Impossible debt burdens among governments, households and banks that can't solve their problems should be "rendered sustainable" via orderly restructurings, reductions and debt-for-equity swaps.

6. Greece and "some other current members" should leave the euro zone. "Only a return to a national currency – and a sharp depreciation of that currency – can restore competitiveness and growth."

7. Advanced economies must plan "to restore competitiveness and jobs" with high-quality education, training, infrastructure and investment in alternative energy.

8. Emerging economies have more ammunition available and should ease their monetary and fiscal policies.

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