'Urgent Need to Boost Demand in the Eurozone'

Biagio Bossone and Richard Wood

To G-20 Leaders: Urgent Need to Boost Demand in the Eurozone: The economies in the Eurozone are continuing to slide into recession and depression.  Senior officials of G-20 countries (including those in Australia, the host government) have not understood, or anticipated, that the Eurozone crisis is a major threat to global recovery. The officials have provided sub-standard advice to their leaders.  The deepening crisis must be addressed.  This article identifies a strong monetary/fiscal policy combination that could boost consumer and aggregate demand, and simultaneously address high public debt burdens and deflation.

Paul Krugman:

1937: From the beginning, economists who had studied the Great Depression warned that policy makers needed, above all, to be careful not to pull another 1937 — a reference to the fateful year when FDR prematurely tried to balance the budget and the Fed prematurely tried to normalize monetary policy, aborting the recovery of the previous four years and sending the economy on another big downward slope.

Unfortunately, these warnings were ignored. ... And now things are sliding everywhere. Actually, Europe already had one 1937, with its slide into a double-dip recession; but now it’s very much looking like another. And the world economy as a whole is weakening fast. ...

I hope that the Fed will stop talking about exit strategies for a while. We are by no means out of the Lesser Depression.

Update: See also The Depressing Signals the Markets Are Sending About the Global Economy - NYTimes.com