ARE WE FOLLOWING JAPAN?

Published in the New York Post on February 9, 2009
From Nouriel Roubini, the economist who most closely predicted the current mess, comes a warning couched in economic jargon that needs to be deciphered and publicized.In a column on Forbes.com, Roubini warns that the United States, in its response to the economic crisis, may be following in the disastrous footsteps of Japan - whose sluggish and overly lenient response to a financial crisis led to a decade of economic misery.In economic jargon, Roubini warns: The "market-friendly, case-by-case approach to the necessary debt reduction of insolvent private non-financial agents - corporate for Japan, households for the US - will be too slow." He calls for an "across-the-board debt reduction" - lest we be condemned to a "systemic debt overhang."

In English, this means that by helping people to stay in homes they can't afford, buy cars beyond their means, pay for college through loans - in short, to acquire goods and services on credit they can't sustain -we are doing them no favors. Instead, we're assuring that debt will "overhang" their lives like a vulture sitting on a branch, inhibiting their buying habits and inhabiting their nightmares.But if we force an "across-the-board debt reduction" that makes them move out of their overpriced homes, trade in their luxury cars, transfer to state colleges - and, if necessary, escape from under their credit-card debt via bankruptcy, we can eliminate the "overhang" and let them and our nation get on with their lives.



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