Comments on: Global Economic Outlook (Senate Testimony)

By: Rick Boyle

Rick Boyle — Tue, 24 Feb 2009 00:04:39 +0000

As stated above on my Jan. 30th comment, failure to understand 30 to 1 leverage was the problem, irregardless of the asset, it could have been sub prime, gold , oil, … anything. Its the leverage when it goes against them.

By: A very important article by an expert, discussing the necessary next step to solve the financial crisis « Fabius Maximus

Tue, 17 Feb 2009 00:01:40 +0000

[...] Our unsustainable debt-fuelled boom, in other words, produced both the conditions for a major global financial disaster, and a political strengthening of the people who benefited most from the risk-taking and associated compensation packages that made this disaster possible. Ending the financial crisis is relatively straightforward – a forced recapitalization and change of ownership/management in the banking system – although this will not immediately lead to an economic recovery (more on that here). [...]

By: American Banking Oligarchs: Bill Moyers Journal « Lost Marbles:)

American Banking Oligarchs: Bill Moyers Journal « Lost Marbles:) — Sat, 14 Feb 2009 19:28:14 +0000

[...] “Global Economic Outlook (Senate Testimony)” By Simon Johnson, THE BASELINE SCENARIO, January 29, 2009. [...]

By: Prof. Simon Johnson | Rfidststemsonline

Prof. Simon Johnson | Rfidststemsonline — Tue, 10 Feb 2009 05:23:43 +0000

[...] economy. Incorporating some of his analysis with your investment strategy is probably a good idea.http://baselinescenario.com/2009/01/29/global-economic-outlook-senate-testimony/ Share and [...]

By: Does this mean it’s Romney on the Oligarch ticket in 2012? | E Pluribus Unum

Mon, 09 Feb 2009 05:11:05 +0000

[...] in the banking system – although this will not immediately lead to an economic recovery (more on that here). But seen in deeper political terms, decisive action to restructure large banks is almost [...]

By: And Now, the Counterargument « The Baseline Scenario

And Now, the Counterargument « The Baseline Scenario — Fri, 06 Feb 2009 20:01:15 +0000

[...] saying the U.S. can probably absorb some more national debt before things go haywire (so did Simon), I thought it was only fair to point to the [...]

By: Kingsley

Kingsley — Wed, 04 Feb 2009 18:53:34 +0000

Appreciate the insights. In multiple posts you discuss your support for US fiscal stimulus as a response to the crisis. Can you expand on the justifications for this, and particularly note your qualifications? For instance, HOW one structures a fiscal stimulus package and to what end matters tremendously. I’m not convinced we’ve got it right. Thanks.

By: Framing the Geithner Bank Plan « The Baseline Scenario

Framing the Geithner Bank Plan « The Baseline Scenario — Wed, 04 Feb 2009 14:08:12 +0000

[...] In fact, over the past few weeks, Congressional leaders (e.g., at the Senate Budget Committee hearing last week) and the President (e.g., see the penultimate paragraph of last week’s TV address) have [...]

By: ‘Lost decade’ for the world economy quite possible | The Humane Economy

Sun, 01 Feb 2009 22:58:00 +0000

[...] says Simon Johnson, in written testimony submitted to the Senate Budget Committee last week. There is a lot to digest here. To sum up, we are likely headed for a long, L-shaped [...]

By: Ricard

Ricard — Sun, 01 Feb 2009 21:16:23 +0000

Hello. I decided to take a look at your website after reading your article on seekingAlpha. I can imagine that the authors are much more amicable about replying to comments on their home turf, as opposed to the throngs on SA.

First of all, thank you for posting this article on multiple forums, so that we can get more exposure to what our politicians are using as “baseline” assumptions.

My question had to do with a specific part of your testimony:

“The current crisis has shown that China’s economy is far from invulnerable. The 6.8% year-over-year growth rate in Q4 may have implied that the quarter-over-quarter growth rate was around zero, and forecasts for 2009 are in the 6-8% range – below the level commonly understood as the minimum to avoid growth in unemployment.”

If I understand your point correctly, growth in China came to a halt Q4. If this deceleration doesn’t stop, it would seem you are predicting a rather large contraction in GDP for Q1 of this year. Is this correct? This would be a nightmarish scenario for everyone banking on a sustained 5% growth in China.

Thanks in advance for a thoughtful reply.

By: Blue Nile

Blue Nile — Fri, 30 Jan 2009 16:54:29 +0000

I am curious why was middle east was left out of all the regions. Surely, it is more important than India…

By: Adam

Adam — Fri, 30 Jan 2009 16:44:28 +0000

“Is there really no way to “recapitalize the banking system” while still letting the existing institutions fail?”

Not without turning the US into a Zimbabwe or a Weimar Republic. The money to recapitalize the system has to come from somewhere. There are only 2 options for the government – borrow it or print it. If you think the government is going to get that kind of loan after wiping out all the creditors you’re crazy. So that only leave printing the money and on the scale that would be needed we’re talking hyper-inflation impoverishing just about everyone.

People also have to remember, banks are for the most part just institutions of transaction. When you wipe out the creditors you’re not wiping out the bank; you’re wiping out all of the depositors at the institution (including yourself) as well as all the bond holders. These aren’t the people that made bad bank management decisions. While the bond holders probably made riskier loans to the banks than they expected and should probably take some losses, a big part of the current crisis is that bond holders don’t know what kind of losses they should expect. But if we decide to punish the financial world by making all creditors take large losses, expect them to then turn around and loan anyone any more money for a long time.

By: Rick Boyle

Rick Boyle — Fri, 30 Jan 2009 13:05:54 +0000

Sub-Prime mortgage loans were never the problem. Every one expected higher percentages of defaults and loses. However having regulated entities and banks securitize and leverage 30 to 1 on sub prime paper was outrageous.
If you have a 10% default rate time 30, thats 300%.

Negative 300% wipes out equity.
To get the economy started, allow less credit worthy buyers to get loans again, just don’t allow the bankers to lever up again.

By: Dan

Dan — Fri, 30 Jan 2009 07:40:28 +0000

The problems are related to the relative wealth and security of consumers and also perceived sustainability of the system. Until those keys are addressed, nothing will fix this.

By: Stefan

Stefan — Fri, 30 Jan 2009 05:11:05 +0000

Call me a crazy utopian, but it seems like the whole world is suffering from an “accounting headache” and we would all do well to celebrate a “global jubilee.” A Biblical jubilee was a year of universal debt forgiveness scheduled every 49 years. In ancient Israel, loan arrangements between creditors and debtors were structured around this year of debt forgiveness, when all was returned to its owner. In our case, we need to celebrate an “unscheduled” jubilee, since it seems that today debtor and creditor nations are suffering this headache mutually.

Naturally, we can’t celebrate this jubilee in its entirety; we are the “wealthiest” nation and, I would guess, one of the biggest debtors. Great for us, but not very fair to others. But the concept can go some way to helping everyone wrap their head around the idea that we need to solve this headache together. And, recognize that we each have something to offer in the overall balance of things, as well as some benefit to receive. During this time of renewal, we could re-purpose the cultures of this world to start doing some good.