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Cycles Will Happen, but Govt's Must Act

The governments of the United States and other economic heavyweights must take decisive action to avoid worldwide economic disaster, two economic experts said Friday.

Lakshman Achuthan, director of the Economic Cycle Research Institute, and Jeffrey Sachs, a special adviser to United Nations Secretary-General Ban Ki-moon, appeared Friday on CNN's "American Morning."

While Achuthan said some aspects of the current crisis are part of a natural cycle and must be endured, he and Sachs said governments can do things to limit the damage and initiate recovery.

American Morning: Is there any one thing or group of things happening right now to cause this crisis?

Achuthan: To keep it simple, there's two pieces to this. There's a credit crisis, which we've all known about and been talking about, and that's been combined with a global recession. And global recessions, these happen over time. We've had a couple since World War II. It looks like this global recession is roughly on par with the one we had in the mid-'70s.

In the mid-'70s, we also had a bear market that didn't happen overnight, it happened over time. We lost 45-48 percent of the value of equities. We're down about 40 percent now, so it's somewhat similar.

And that part of it you can't do anything about. That's just happening. The credit part you can maybe do something about.

AM: Is there a consensus about how we got here?

Achuthan: There hasn't been an understanding about how we got here. There was this housing and credit problem, and then the recession is approaching, and a lot of time was wasted as opposed to acting quicker. ... The whole issue is time. The markets don't wait for these debates [over policy]. They will move right away. You have to also be having policy move quite quickly. These are huge things that are being done right now.

The governments -- not just the U.S. government but the governments of the world -- can do something about the credit part of this problem. That's half of this problem.

The other half is the global recession and, unfortunately, the business cycle dwarfs governments. You can't do anything about that. That part we're all along for the ride on.

AM: We're seeing consumer spending pull back. Do we need another multibillion-dollar stimulus check to go out to people?

Achuthan: It may do something on generating a recovery next year. The immediate issue at hand is unsticking the credit markets, and I think the government -- the major governments, not even the G-7 but the G-20, even bringing in some of the bigger emerging markets as well -- all need to get together and say they are getting behind the credit markets.

I suspect that will come out of the meetings that they are having right now. If they don't, then there's trouble in the credit markets.

On the business cycle, on where is the consumer is headed, on where jobs are headed, we're going to have to ride this out because the train has left the station. There is nothing you can do about that. We're along for the ride.

That is the bad news. The good news is that the business cycle always turns. Out of all this destruction, there will be new opportunities. And there will be pent-up demand. When you add that with all of this liquidity that has been put in here, we will have a recovery.

Another [stimulus] package may reinforce that recovery, and in that sense it may be a worthwhile idea ... to make sure that somewhere in '09 there's an upturn that sticks...