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By Philippe Legrain ADD COMMENTS

Willem Buiter sums it up perfectly:

The private financial sector has to deleverage massively, but would
(with credit markets and wholesale financial markets closed for
business) do so in an unnecessarily destructive way if left to its own
devices. The household sectors in the US, the UK and a number of other
European countries have to deleverage (start saving seriously) on a
significant scale. Left to its own devices, the short-run Keynesian
aggregate demand fall-out from a necessary reconstruction of household
financial wealth could be disastrous. So the public sector has to
leverage up (borrow) at the same time the household sector is forced to
deleverage.

Posted 25 Nov 2008 in Blog, Economics, Global Economy

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