Senate Testimony Tomorrow

From 10am until about noon on Thursday (January 29th), I’ll be testifying to the Senate Budget Committee on a panel discussing The Global Economy: Outlook, Risks, and Implications for Policy.  I’ll post my testimony here after the session, and – potentially with some edits – this will also serve as the revised version of our Baseline Scenario.

Now would be a good time to tell me if you think there are important developments around the world, big or small, that we have overlooked recently.  And if you have other policy-related points that you think I should consider making, please post those as comments here also.

7 thoughts on “Senate Testimony Tomorrow

  1. You don’t have much time, but here is food for thought. The net external debt of the planet is zero. Therefore, Earth is solvent and (neglecting unfunded liabilities such as pensions) has a sterling balance sheet. The US (the country) also has assets with an FMV of $100T (my guess based on Household Net Worth of $50T) and external liabilities of $3T (again my guess). Therefore the ratio is quite good; another $T in expenditures won’t kill us. Since the planet’s net liabilities are zero, some countries must have assets to balance the US liabilities. Thems that have should spend more.

    More thoughts on request.

  2. Just as our national economy has been overwhelmed by a disproportionate inequality in the distribution of wealth, so it must be for the world at large. Overlarge imbalances impair the health of the global economy as a whole as poor countries become nests of disease, crime, ignorance, and warfare. As the world recovers in the coming years, the developing world offers the greatest opportunities for economic growth, and by helping them in real terms and appropriate ways, we can even share in their improvement and success as partners, mentors, and just plain neighbors. Goodness and virtue are not mysteries, they are just hard to maintain over time. We should take stock in policies that promote balance and fairness.


    I think it is fair to say that America bears the greatest responsibility for the disastrous global economy we are now experiencing.

    With that in mind, it is disconcerting that among the G20 only Japan was willing to lend a sizable sum to the IMF last November. Perhaps you could diplomatically suggest that since we were a big reason this crisis came about, it behooves us to remedy its ill effects in smaller and more vulnerable nations around the world by making a similar committment to the IMF.

    I assume you likely had in mind to speak to this issue. Just wanted to voice my personal support for it.

  4. There is a need to leaders to accept responsibility for the situation we are experiencing and avoid the newest bubble – “blaming others”. It is essential that the US work as a true partner, based on its strong historical values and with a sense of humility and openness, with other major players, who likely have value to add, to jointly address the challenges that you have described so well in various other articles. It is reasonable to expect many developing countries will suffer greatly in the next few years and the G20 must be prepared to help. It is probable the large trade imbalances some countries have with the US will become non-issues in the near future given the significant move to savings and reduced consumption in the US, so we need to be sure we focus on the most important issues which should include repairing the financial system, addressing the housing sector, investing in education, health care, and the environment, as well beginning the process of reforming social security….and whatever else you think needs to be added-:)

  5. How about mass nationalization of banks (followed by mass privatization) and mass credit restructuring?

    In a bubble too much credit is extended (bank balance sheets become too big), and too much credit is taken (debt loads become too big).

    Waiting for the market to work things via bankruptcy and gradual repayment of debt entails several years of depressed economic growth as there is a dearth of banks with capacity to lend, credit worthy borrowers, and stagnant incomes.

    Inflating debt away may get rid of this burden quickly but risks hyperinflation, as we know not at what level of monetary creation expectations will change, and once we’ve created inflationary expectations with so much monetary cinder around the process may be extremely difficult to control.

    So have the government organize a massive debt for equity swap — followed by an auction of government equity in the banks in a short and predefined time (12 months following nationalization?).

    Since borrowers with debt too large too handle will seek to pay down debt, and when too many take that route too quickly they will find that their incomes fall as a result a law could be passed to allow the debtors to force the lenders to agree to a cut in the debt level on the basis of a template debt restructuring agreement that predefines allowed debt haircut level (say between 10-30%?), and other key terms. Tthis option should be available for a short period of time say 9 months — and should expire some time before the deadline for reprivatization of banks is set to expire.

    Is the above fair? Probably not. But neither is a transfer from thrifty tax payers to irresponsible lenders and borrowers. Is it efficient? Probably yes. Banks will take balance sheet losses anyway — but it will be messy and protracted. The above scheme allows this process to take place quickly, and within predefined set of outcomes.

  6. Your testimony may not be the time or the place to critique Obama’s stimulus, but I think attention should be drawn to the ‘Buy American’ provision requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

    The U.S. needs to provide leadership by resiting protectionist policies, not by implementing them.

  7. The problem of the ratings agencies (S&P, Moody’s, etc.) seems to have been forgotten in the panic about the bad assets. But it is hard to see how confidence in the markets can be restored without re-construction of vigorous, independent ratings agencies. Who else can evaluate all these toxic assets? I would set up a muscular, not-for-profit independent ratings Commission, based on the Underwriter’s Laboratories model, to assess risk.

    The board of such an organization should include all the stakeholders in the financial system: consumers, regulators, banks, insurance companies, and corporations. This is how independent product safety certification agencies work in a variety of industries.

    All of the bank bailout plans seem to ignore the essential role that a lack of confidence in the judgment of banks AND regulators. To get the banks lending, we need a new, credible and INDEPENDENT arbiter of credit risk. ASAP.

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