UBS AG senior economic adviser George Magnus says that if individual governments fail to take active and unorthodox steps to address the attack on credit markets, the global economy will plunge into a death spiral.
“It’s impossible for central banks to resolve this on their own,” says Magnus. “In the end, all crises of this nature require active and unorthodox government intervention.”
In July, Magnus said that the U.S. subprime mortgage-market collapse might not be containable. Today, Magnus asserted, “It’s too late to worry about moral hazards. There’s a serious danger we could slip into a death spiral of credit contraction, economic weakness, capital destruction and credit contraction.
At a meeting in Washington on April 11, finance ministers and central bankers from the G-7 discussed measures to avert future crises. The G-7 includes finance ministers from the United States, Japan, Germany, France, United Kingdom, Italy and Canada who meet several times a year to discuss economic policy.
Magnus discounts the significance of any coordinated action plan via the G-7 meeting. “The issue is, how do we fix the financial crisis to actually stop it becoming a Great Depression again,” Magnus said. “On that score, it’s more down to national governments and national regulators than international agreements.”
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