A Radical Policy Response to the Rising Risks of a Depression and Financial Crisis

The latest macro data indicate that most advanced economies—the U.S., most of the eurozone (EZ), the UK, Japan —are falling back into recession, while stress in the financial system and markets is reaching levels not seen since the collapse of Lehman Brothers.

At the same time, hopes that strongly growing emerging markets (EMs) can decouple from the G7 downturns are now being dashed: The latest global PMIs suggest a massive slowdown of growth in EMs from China, Taiwan and South Korea in Asia to Brazil in Latin America and Turkey and Russia in emerging Europe. It is clear that we are at stall speed in the global economy and, as with an airplane that decelerates rapidly and stalls, there are only two options: Either the plane—the global economy—rapidly reaccelerates to return to escape velocity or it starts to free fall.

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