Thomas Palley

There is widespread recognition that the financial crisis which triggered the Great Recession was significantly due to financial excess, particularly related to real estate. Now, policymakers are looking to reform financial systems in hope of avoiding future crises. But like the drunk who looks for his lost keys under the lamppost because that is where the light is, policymakers remain fixated on capital standards because that is what is already in place.

There is widespread recognition that the financial crisis, which triggered the Great Recession, was significantly due to financial excess, particularly in real estate lending. Now, policymakers are looking to reform the financial system in hope of avoiding future crises. But like the drunk who looks for his lost keys under the lamppost because that is where the light is, policymakers remain fixated on capital standards because that is what is already in place.

Dr. Thomas Palley is the Bernard L. Schwartz Economic Growth Fellow. Prior to joining New America, Dr. Palley was the Chief Economist with the U.S.-China Economic and Security Review Commission. He was Director of the Open Society Institute's Globalization Reform Project, and before that he was Assistant Director of Public… more

Over the past several weeks, the US dollar's depreciation against the euro and yen has grabbed global attention.

In a normal world, a weaker US dollar would be welcome, as it would help the US come to grips with its unsustainable trade deficit.

But because China links its yuan to the US dollar at an undervalued parity, the US dollar's depreciation risks major global economic damage, complicating the recovery from the worldwide recession.

Over the last several weeks, the dollar's depreciation against the euro and yen has grabbed global attention. In a normal world, the dollar's weakening would be welcome, as it would help the United States come to grips with its unsustainable trade deficit.

But, in a world where China links its currency to the dollar at an undervalued parity, the dollar's depreciation risks major global economic damage that will further complicate recovery from the current worldwide recession.

Over the past year the global economy has experienced a massive contraction, the deepest since the Great Depression of the 1930s. But this spring, economists started talking of "green shoots" of recovery and that optimistic assessment quickly spread to Wall Street. More recently, on the anniversary of the Lehman Brothers crash, Ben Bernanke, Federal Reserve chairman, officially blessed this consensus by declaring the recession is "very likely over".

Fiscal conservatives are opportunistically looking to use the recession induced spike in the budget deficit to revive their crusade for fiscal austerity. The case for fiscal austerity is based on flawed economic analysis and it is not supported by thoughtful budget analysis. It was the wrong agenda before the crisis and it is even more wrong now.