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Fragile and Unbalanced in 2012 December 18, 2011

Posted by proeconomia in Fiscal policy, Main, Monetary policy, News on Greece, On the crisis, Opinion.
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This is from Nouriel Roubini and can be read as a follow-up to the previous post since it also includes many arguments (re-distribution, demand, currency appreciation etc). Here are some excerpts to see why!

“Rising inequality – owing partly to job-slashing corporate restructuring – is reducing aggregate demand further, because households, poorer individuals, and labor-income earners have a higher marginal propensity to spend than corporations, richer households, and capital-income earners. Moreover, as inequality fuels popular protest around the world, social and political instability could pose an additional risk to economic performance.”

“Orderly adjustment requires lower domestic demand in over-spending countries with large current-account deficits and lower trade surpluses in over-saving countries via nominal and real currency appreciation. To maintain growth, over-spending countries need nominal and real depreciation to improve trade balances, while surplus countries need to boost domestic demand, especially consumption. But this adjustment of relative prices via currency movements is stalled, because surplus countries are resisting exchange-rate appreciation in favor of imposing recessionary deflation on deficit countries.”

Currency devaluation is a zero-sum game, because not all countries can depreciate and improve net exports at the same time.” (very relevant for Greece)

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Comments»

1. Constantina Kottaridi - December 19, 2011

Please pay attention to this important paragraph:

“Rising inequality – owing partly to job-slashing corporate restructuring – is reducing aggregate demand further, because households, poorer individuals, and labor-income earners have a higher marginal propensity to spend than corporations, richer households, and capital-income earners. Moreover, as inequality fuels popular protest around the world, social and political instability could pose an additional risk to economic performance.”

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