Roubini: How The Federal Reserve Should Withdraw The Stimulus

The Globe and Mail:

There's a general consensus that the massive monetary easing, fiscal stimulus and support of the financial system undertaken by governments and central banks around the world prevented the deep recession of 2008-2009 from devolving into the Second Great Depression.

Read the whole story: The Globe and Mail

Comments

[LunaPark]

What "deflationary forces" is Roubini talking about? Even with the job loss and lack of demand, we are still experiencing inflation. Based on the pre Clinton CPI, our inflation is running over 10%. Even with the current Fed endorsed CPI, our inflation was up 0.4% in July. Expect Argentine style inflation in the near future.

[ntmessage]

1000% Inflation? No way! We are not an emerging economy. For people that were paying attention we just went through an amazing inflationary period during Bush. Mostly because he kept rigging the game. Housing, food, health care and energy are systematically taken out of the calculations but are the biggest part of the economy. Now prices are working toward half of what they were, so we can have 50% inflation over time and just get back to the price points we had.

Looks like real deflation potential more than inflation, hands down. Even if inflation gets to 5% per year, from where we are starting it is nothing.

[ntmessage]

Doom and gloom. People over invested in gold. That is what the fear mongers want you to believe. For those that remember the 70's, the gold and silver bugs had their investments ending badly. Plus Volcker who now works for Obama knows how to stop inflation. History looks to repeat itself from the 70’s, except the Pubs made the same mistakes Nixon made, but the Dem’s are going with the Clinton playbook. and those betting against Bernanke will go down in flames. There is simply too much firepower in this white house economically. Plus policy a Clinton one as well, not a Carter one. We have already crashed and are coming out the other side. There will be lower growth, yet not enough to stoke inflation. Betting against Bernanke? A fool’s game.

[outnow]

Volker - Raise interest rates until inflation is squeezed out of stagflation.

Bernanke - Run the printing press if deregulation starts a new depression.

Paulson - Bail out the banks.

Geithner - Monetize the debt.

Raygun - Cut taxes on the rich, bust unions.

Clinton - There is nothing that cannot be outsourced.

Nixon - Devaluate and close the Gold Window.

Bush - Start new wars and create a security state.

Sorry, you have more faith than I do. I too was around when these things happened. Commodities are my prediction for now because of asset deflation and inflation of the money supply.

[ntmessage]

Nothing emperical said here.

[LunaPark]

Our debt load is staggering compared to the 1970s. Inflation is the only choice Ben has. I'm praying we follow Carter's policy of deregulating. If you remember, Carter deregulated the trucking industry, the airline industry, the gas industry, and his justice department toppled Ma Bell and the telecommunications industry. These actions lifted us out of the 1970s economic mess caused by a decade of war in vietnam. However, Reagon took credit for it.

[ntmessage]

For people that were paying attention we just went through an amazing inflationary period during Bush. Mostly because he kept rigging the game. Housing, food, health care and energy are systematically taken out of the calculations but are the biggest part of the economy. Neither Full-blown capitalism nor full-blown socialism is the answer. Just because we had an ideological battle since the 50s does not mean this dinosaur mentality still applies.

Too much money is overinvested in currencies and working against governments thank to people that think breaking the pound for example was a good thing some years ago. For that reason, governments will need to step in, if necessary to fix things like out of control negative feedback loops.

Some of the capitalists have rigged the game and governments do not have to play by the made up rules if it would be disastrous for them. Thank god, Bernanke did not just sit by as England did when they were made a piñata by Soros. Plus this keeps everyone on their toes. Competition is a good thing and closed minds think that it can only happen in the public sector.

[LunaPark]

The US is broke. The dollar index is nose diving. There is no way to pay back the huge debt we've incurred without cheapening the dollar through serious inflation. Health care would be great, but we can't pay for it.

[outnow]

And broken.

[yappnmutt]

what they should do and what they will do are mutually exclusive. history says this will not end nicely. bernanke has already broadcast that he intends to end the easy money policy in october. he has no control over .gov spending and there is no indication .gov has any willpower to stop spending.

if bernanke ends the easy money policy in october as he has indicated(because he says the recession is TECHNICALLY over) the problem of deflation is far from over. if .gov keeps spending money like it has it all(it does) the value of the dollar is in serious threat of 1987 like devaluation. the result will be the worst of all economic circumstances, a deflationary hyperinflation, where the real value of things priced in gold is dropping but the nominal value of things priced in dollars is skyrocketing.

[Lyr]

When the towers came crashing down, I started buying gold. My meager wealth will preserved through this transfer, I fear the others though, they are about to be robbed of everything they have.

[ResidualSelfImage]

WRONG renegotiating bad trade deals will cure that and private investment will flow.

"Better idea: Eliminate corporate taxes they provide for approximately 15% of federal tax revenue. This would attract capital and help put american back to work. TO offset some of the reduction in corporate tax rates adjust the dividend and capital gains tax upward slightly."

[FatherKindly]

PartyPartyParty I'm a Fan of PartyPartyParty I'm a fan of this user 22 fans permalink
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"In a nutshell: tax the rich at an appropriate rate, eliminate corporate income tax loopholes and cut government spending. Let's start the spending cuts by withdrawing completely from Iraq and Afghanistan and eliminating the Department of Homeland Security."

_________________________________________

This makes too much sense ever to come to pass.

[FreedomCorpse]

Roubini is arguing for the federal reserve to actually work for the people, ain't gonna happen, never has, never will

[vooter]

Unfortunately, no one has explained yet why another Great Depression wouldn't be the BEST THING that could happen to the United States. Extremely painful, and extremely helpful. But I guess a law that states that Americans shouldn't have to suffer too much was passed when I wasn't looking....

[leevntheus]

I'm with voot. Politicians' reluctance to lose elections due to natural economic cycles is at the root of this problem. Credit has been fabricated for 60 years and the monetary base has been DOUBLED in just the last year for economists and politicians to claim "economic growth". But as far as the dollar is concerned, it creates "economic shrinkage". And it leads to more dependence on debt by the consumer/voter. We are circling a toilet bowl that we do not control.

Natural, regular market corrections of the economy DOES include sector market corrections and employment variations over time. But it is the JOB of our elected officials to mitigate these problems with proper management, just as a large corporations as well as small businesses have to.

Our dollar would always be worth a dollar, and consumer/voters could buy goods and services at "real" value, not hyper inflated values that require debt servicing to exist.

[northstar11]

isnt the better approach to tackle the enormous debt problem directly------trillions--ten to twelve of them---- constitute the national debt---mopping up excess liquidity ---will lead to a rise in interest rates ---and when you are 12 trillion in debt the carrying costs are staggering

now would be a good time to impose a 10% VAT --value added tax ---every one will squawk no doubt about it --more taxes aghhhh--- but in 12 years the country will be solvent --

a 14 trillion dollar GDP subject to 10% VAT should raise 1.4 TRILLION per year ---this amount applied to the national debt could do wonders ------it is very progressive tax as the rich by high ticket items -ask john thain_-and would pay more taxes

if all goes well it could even be left in place and replace the"income" tax.------and guys like W could no longer do the reverse robin hood trick.

[Labsaregreat]

Just to clarity a VAT on the entire US economy would reduce US GDP.. In addition a VAT would not be progressive as the same percentage is paid by rich and poor. In fact given the wealthy ability not to consume luxury items, this tax would be more punitive to the poor

[changeself]

in short,

wall street bailouts are fine, but

spending on people through entitlements (medicare, medicaid, social security) need to be scraped.

save the financial system at the expense of people.

heard that song many times before.

[FreedomCorpse]

yep. George W bush wanted social security payments to go into Wall Street to prop up the fraudulent casino...its happening

[ntmessage]

Some of this article makes a lot of sense since it communicates the potential downside of the steep yield curve necessary to get us back from the brink. Bernanke has done an unpredictably brilliant job as Fed Chairman, by changing his mind and not walking into the same buzz saw his predecessors did. For that reason, he is an independent and out of the box thinker that has the usual suspects on Wall Street nervous that he will in fact succeed with his exit strategy. No evidence exists that hyperinflation will occur (100% year over year) or a W recovery will occur (double dip recession no job recovery). Yet many have already made huge bets and are showing their weak hands.

They were wrong before and will be wrong again betting on Bernanke to screw up the exit strategy. The Cassandra’s are playing the fear card daily. Many want Obama to fail.

The big issue will be pulling the plug too soon, something other Feds have done. But Bernanke knows not to show his hand in advance. A huge mistake that gives the high frequency, flash trading, and dark pool hedge funds an opportunity to game the strategy and put the entire recovery at risk, including the always-lagging job growth that equates to a main street recovery as opposed to only a Wall Street one.

So keep the L, W, U or even square root shaped recovery theories. I go with Bernanke. And that shape is a Star.

[vooter]

Wait a second--you think that simply printing trillions and trillions of new fiat dollars in a desperate effort to keep the patient alive is out-of-the-box thinking? LOLOLOLOLOL...this will all end in tears, as it should. Good luck!

[ntmessage]

Hmm. Econ 101 not a skill? Backing loans is not the same as printing money. The money supply has also been flat since the year began. Lastly, net worth of all Americans has risen by much more than the money printing but is still way below anything that could ever start real inflation. In fact, we need to ramp significantly over many years just to get back to where we were.

Anyhow, those that bet against Bernanke. The tears are all theirs.

[swift goat pet for truth]

I do not get how sales, top line growth, is supposed to happen.

One effect of the Stim is to stim actual jobs and help the "jobless" part of the "jobless recovery".

I did not see in the article how to fix that.

[changeself]

NONE of the "genius economists" quoted by mainstrem corporate media give a dam.n to the "jobless" and homeless PEOPLE.

they have only one master to serve: money and more money.

[PartyPartyParty]

HuffPost's Pick

In a nutshell: tax the rich at an appropriate rate, eliminate corporate income tax loopholes and cut government spending. Let's start the spending cuts by withdrawing completely from Iraq and Afghanistan and eliminating the Department of Homeland Security.

[wesinohio]

I like that.

[StephBr]

So do I

[Labsaregreat]

Better idea: Eliminate corporate taxes they provide for approximately 15% of federal tax revenue. This would attract capital and help put american back to work. TO offset some of the reduction in corporate tax rates adjust the dividend and capital gains tax upward slightly.

Lets also eliminate dept of education, merge interior agriculture, commerce and labor into one. I could probably think of a couple of other reductions