Monday, November 26, 2007

An Economist Uses Forbidden Words

Recession and crisis are two terms Larry Summers does not fear using. In today's Financial Times, the economist and former Harvard President says the money biggies have to act now, right now.

His writing is a typical overgrowth of mumbling, but worth pushing through. He even has some direct declarative statements like, "Second, it is now clear that only a small part of the financial distress that must be worked through has yet been faced."

He cites the acknowledged mortgage and credit terrors, as well as the pathetic dollar, rising energy prices, the explosive Middle East and world economic woes. He figures that "economic policy needs to be governed by the clear and public recognition that restoring the normal functioning of the financial system and containing any damage its breakdown may do the real economy is the central macro-economic and financial challenge facing the US." He does not add what is implicit, that our Executive Branch and its simian leader won't and can't do the necessary.

He states:
  • The Federal Reserve must do far more than reduce deficits. "(F)iscal policy needs to be on stand-by to provide immediate temporary stimulus through spending or tax benefits for low- and middle-income families if the situation worsens."
  • Policy makers must do far more with more innovative methods to maintain the flow of credit. Their current techniques are inadequate.
  • The FHA must use existing and even direct lending to maintain housing demand, as well as introducing templates for restructuring mortgages for the millions who may face foreclosure.
He adds that even if these are executed well, they may not prevent recession. Yet, he notes they are far more than being done now.

He even gives us a touchstone for when we shall know we are on the right path. "In the US today, as in many other countries in the past, confidence will return the first day an official statement about the economy proves to have been too pessimistic."

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