My comment: All economists that use modern techniques and theories knew in 2006, and of course in 2007, that we were facing a U-shaped crisis. I will not enter into a debate about this point. I aim to describe what to do at each phase of the four phases a U-shaped crisis has.
All crisis are produced by imbalances. Once we identify the crisis and its shape, our first task is to identify its root cause and to attack that cause, which imbalance is creating this crisis. If we do that we will suffer a crisis, yes, but also it will be an opportunity to remove that imbalance and to exit the crisi in a better shape. I will use seassons as an analogy. This is the main goal during FIRST PHASE, while economy still grows although we see dark clouds in the horizon as a prelude of the storm. First phase is like FALL, we know that winter is coming and we have to get ready. It should have happened in 2006, 2007 and first half of 2008. The main imbalance in US economy was (and is) the imbalance between domestic demand and domestic supply (domestic demand is much higher). It requires foreign supply to satisfy that domestic demand. Domestic demand is both householders and public sector. At that time the main goal should have been to cut federal and local deficits and to cut householders consumption (or to promote savings). Exactly the opposite that rebates, tax cuts, paychecks for consumption, floods of US dollars into the economy, etc. In USA, That phase ended up in July- August 2008 and US economy entered into second phase. In China, the imbalance was the opposite. Low domestic demand and high domestic supply. It makes China to be an export oriented economy. In China, that phase ended up in September 2008. When we reach SECOND PHASE (WINTER). We cannot do much but to try to reach bottom as soon as posible and to move to third phase as soon as posible. Also, in this phase we have to gather as much ammunition as we can to use in third phase. For example to be cushioned by high interest rates and drop them in third phase, to moderate excess of liquidity that will be required in third phase, etc. In US economy, this phase lasted till September 2009 in this crisis, when US economy bottomed. In China, this phase ended up in February 2009. Once we reach bottom we enter into THIRD PHASE (SPRING). This is when we have to release all our ammunition, when we have to nurture our economy as much as we can, to protect it against all sort of risks around, etc. Time to cut interest rates, to inject liquidity, to boost growth, etc. At the end of this phase we will see the fruits of our hard work, economy grows smootly and robust. US economy is still in this phase. China exited around September 2009. If we did our job, we will enter soon into FOURTH PHASE (SUMMER). Now we have to remove carefully the protections we placed to protect, to feed our economy and we have to let the economy grow by itself in a better shape than before the crisis. If we did not do our job, our ground will be worse than before the crisis and we will not harvest good fruits. I hope this message helps. Peace and best ishes. Xi --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
