The global economy is currently taking the "botox" cure. A flood of money from central banks and governments – "financial botox" - has temporarily covered up unresolved and deep-seated problems.Satyajit Das on the Botox Economy.
Governments and central banks have dealt with symptoms but not addressed the underlying causes of the Global Financial Crisis.Satyajit Das on the Botox Economy
There is confusion between the "disease" — high levels of debt — and the "cure" — the reduction of the level of debt now under way (deleveraging). Debt within the financial system is falling as some borrowers default, destroying existing debt and also limiting the capacity for further credit creation. Total losses from the crisis are estimated by the International Monetary Fund at about $US4.1 trillion ($A5.4 trillion), of which $US2.7 trillion will be borne by financial institutions.Satyajit Das at The Age on End of the Age of Plentiful Debt.
Government ownership, or de facto nationalisation, has become the primary option to recapitalise the banking system in many countries. Even after recapitalisation there is likely to be a capital shortfall in the global banking system of about $US1 trillion-plus, forcing a contraction in global credit of about 20-30 per cent from existing levels. This is much more than a banking problem. At this point it affects the real economy.
