The Great Debate UK

from Chrystia Freeland:

Nouriel Roubini sees ‘the roots of the next crisis in the current one’

Nouriel Roubini is #12 on on Foreign Policy’s list of the 100 Top Global Thinkers of 2010. Over the past few years, the economist at New York University says he's been thinking most about why financial crises occur and whey they are occurring more frequently than we have expected.

Contrary to the conventional notion that crises are random and infrequent events, Roubini has been arguing for the better part of a decade that financial crises can be predicted based on macroeconomic and policy mistakes. In fact, they occur every few years in some country around the world, he says. Roubini characterizes these financial crises as a "white swan" event. He emphasizes their regularity in his recent book Crisis Economics. Roubini says the pattern of crises is always the same: initially there is an economic boom, which drives up asset prices, leading to an excessive build-up of debt and leverage, which eventually leads to a downturn and then a market crash and bust.

The co-founder of Roubini Global Economics, Roubini credits his 20 years of experience studying financial crises in emerging markets -- he published a book about their causes and consequences in 2004 -- for enabling him to spot the risks for a crash. He also notes that others who foresaw the crisis, such as Morgan Stanley Asia's Steve Roach and then-Merrill Lynch economist David Rosenberg, share a global view of economic dynamics, intellectual courage and a certain outsider status, a characteristic that fellow FP Global Thinker Mohamed El-Erian said was vital for his own success.

Looking ahead, Roubini worries about the balance of power in a world in which the U.S. is no longer a superpower. Global governance has shifted to the G-20 from the G-7, which was really a G-1, with the United States playing the role of the global hegemon and provider of global public goods. As America's power declines, there is no country stepping in to be the world's leader. Instead, emerging powers like China, Brazil, and India are all free-riding on America's contributions to international order. Roubini fears that the world will go from a G-20 to a "G-0", where there will be political and economic disorder.

Should a country always stand behind its banks?

Ever since the financial crisis broke in 2008 some of the world’s major banks have their governments to thank for their survival. The fates of Royal Bank of Scotland or Citibank would have been much worse without large injections of capital from the UK and U.S. authorities. The UK government pumped more than £37 billion into its largest banks in the immediate aftermath of the Lehman Brothers crisis. Ireland took that a step further when it guaranteed all of its banks’ deposits and liabilities. This was affordable, the Irish government said at the time.

However, this policy failed spectacularly. Ireland’s bailout of its banking sector brought the country to the edge of bankruptcy and forced it to accept a 82 billion euro bailout loan from the IMF/ECB and the European Union. More than 30 billion euros of this loan is to re-capitalise the Irish banking sector and the rest is to shore up the state’s finances. The conditions of the loan mean that Ireland will have to implement harsh austerity measures for many years to come that will inevitably hurt growth.

Why big government is bad government

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jill-kirby-Jill Kirby is author of “The Reality Gap” and director of the Centre for Policy Studies. The opinions expressed are her own. -

In the midst of an economic crisis, we have a crisis of trust in politicians. But it is not through their lack of activity. Over the last ten years, layers of government have multiplied, more regulatory bodies have been put in place, thousands of new laws have been passed and greater powers of surveillance have been accorded to the State.

“Green growth” strategy viable for African economy

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michael_keating -Michael Keating is director of the Africa Progress Panel. The opinions expressed are his own.-

After a decade of solid progress Africa is now facing the daunting task – at a time of economic crisis – of maintaining stability, economic growth and employment, addressing food security and combating climate change. No country on the continent is escaping the impact of volatile fuel and commodity prices, the drop in global demand and trade.

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