Dominique Strauss-Kahnan announced yesterday that the industrialized countries are now officially in a depression. No news to me. People like Roubini are having a great laugh with all the short-sighted positivists who only last September even fighted the idea that the US was entering a recession.
Depression:
A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living, as was seen in the US and in Germany in the 1930s.
hough there is no widely accepted definition for an economic depression, according to an article in The Economist, there are two rules of thumb found widely on the internet. One is a decline in real GDP exceeding 10%, and the other is a recession lasting 3 or more years.
Actually, just as Sunil Kewalramani, CEO of Global Capital Advisors, I believe 2009 could be worse than the 1930 depression.
Roubini sees as only way out of this mess a nationalization of the banks. I second that. But people like Geert Noels fiercely fight that idea and still do so today.
Geert Noels rather points a finger to the IMF itself as the culprit.
The problem is of course not the IMF as an institution. The problem is that the last 5 years the G7 countries refused to give out the leadership of the IMF to a leader from the Emerging Countries. Read this excellent note from Sebastian Edwards on the matter, dated March 2006. Imagine how the world would look like if someone like Alejandro Foxley would have been leading the IMF since 2004?
Not surprisingly, the most knowledgeable people on crisis prevention and crisis resolution are in the successful countries of Latin America. After decades of instability, a handful of Latin countries - in particular, Chile and Mexico - have become an example of prudence, austerity and macroeconomic stability. These Latin American nations have learned the hard way. Their leaders understood that to achieve prosperity and social progress, a combination of good economic policies, political realism, and well-funded social programs was required.
Not surprisingly, the most knowledgeable people on crisis prevention and crisis resolution are in the successful countries of Latin America. After decades of instability, a handful of Latin countries - in particular, Chile and Mexico - have become an example of prudence, austerity and macroeconomic stability. These Latin American nations have learned the hard way. Their leaders understood that to achieve prosperity and social progress, a combination of good economic policies, political realism, and well-funded social programs was required. Mr. Alejandro Foxley, Chile's first finance Minister after the return of democracy in 1990, and one of the architects of the country's extraordinary economic success, is another ideal candidate to lead the IMF. People as different as Joseph Stiglitz, one of the IMF's most ferocious critics, and Robert Rubin, the former US Secretary of the Treasury have praised Chile's economic accomplishments.
