The Way Forward
Moving From the Post-Bubble, Post-Bust Economy to Renewed
Growth and Competitiveness
Daniel Alpert, Managing Partner, Westwood Capital
Robert Hockett, Professor of Law, Cornell University
Nouriel Roubini, Professor of Economics, New York University
Abstract of how to fix the problem. Read the paper to better understand their diagnosis for how we got in this mess.
5-7 year plan - a Marshall Plan, if you will, is required
- We face an oversupply of capacity and a "demand hole as as the private sector de-levers
- Requires sustained and strategically concentrated public investment in infrastructure, domestic energy, and technology. Need to provide businesses confidence that demand will return.
- Need to restructure private sector debt - reduce relative debt burdens. Major program of debt restructuring, refinancing, and relief. Will require recapitalizing banks but will avoid Japanse problem of "zombie banks" with billions in loans where LTV is upside down
- Rebalance global trade and address structural deficiencies (best reflected in the US current account deficit), whereby China and growth economies begin to consume. Requires currency appreciation of the Renminbi.
- US Public Infra Spending
- $1.2 trillion/5 year public investment program targeting high return investments in energy, transportation, education, R&D, and water-treatment infra
- Debt Relief
- Debt restructuring and regulatory capital loss absorption. Drive resolution of trillions in impaired debt where the nominal value of the debt is > asset value. ex. mortgages that are underwater
- Increasing domestic demand in current- account surplus nations
- Global Rebalancing - currency realignment, domestic demand growth, reduction of current account surpluses. China, Germany, Japan, and petro-dollar economies need to spur domestic demand, allowing local currencies to appreciate against the USD, letting wages rise, etc. Requires China to develop social safety net, reduce export subsidies, pay out dividends and incomes, and increase wages, and most importantly, allow for currency appreciation