US financial system “effectively insolvent”


Despite all the stimulus packages and bailouts, the US financial system is broke.

That’s the view of Nouriel Roubini, the economics professor who predicted the global economic collapse, long before most people.

He adds there is a “rising risk of a global L-shaped depression that would be even worse than the current, painful U-shaped global recession”.

That’s in sharp contrast to the view of other economists, the IMF, and the local business press, who are hoping for a small recovery in 2010. Some even are hoping for a rally in the second half of this year.

But Nouriel says any rally or recovery from China’s and the US’ stimulus packages this year is likely to be illusory, a sucker’s rally.

Today, Najib is going to announce a multi-billion mammoth second “stimulus package”. But will it be more money down the drain – apart from the usual jobs for the boys with public money?

Nouriel points out that  fiscal policy stimulus in the US and China will have limited impact:

…given the collapse of five out of six components of aggregate demand (consumption, residential investment, capital expenditure in the corporate sector, business inventories and exports), the stimulus from government spending will be puny this year.

He also says the AIG bailout is a cover for the bailing out of its creditors:

So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

Read the full Forbes article here.

Please help to support this blog if you can.

Read the commenting guidlelines for this blog.
Notify of

Most Voted
Newest Oldest
Inline Feedbacks
View all comments

The economy will turn worst in second half of this year. Oil producing nations have cutting down their production recently in order to save their economy by push up the oil price. China and US strategically stoking up the cheap petrol. This will lead to the stagflation. Imaging no jobs with high living cost. What happened next? Our reserve only 96 billion, our mini budget costs 60 billion. with current diminishing cash inflow and great numbers of foreign fund outflow.What happened to Malaysia? Will Malaysia suffers similar fate as Iceland? A Bankrupt Nation. Our reserves are US$91 billion at the… Read more »


Bailouts are basically pain-killers. They don’t cure problems, just postpone them.


I dun think the FM cares about the economy.. it is more the crony economy. Feeding cronies so that they are happy to continue supporting their masters…


Eu Soon is 100% correct, no matter you like it or not (as some of the UMNOs goons suggested to boycott US’ produces), current scenario (may change in 30/40 years to come), not even China nor India (which they may have huge population) has the power to move the world economy, only US, Japan and part or the European countries (ie: Germany, UK, France ect) can do that.

Ong Eu Soon

You have to care about US economy, no choice. They are the master, you are the slave. The way of solving US problem is so simple; make your money not worthy and make mine more worthy. By doing so, I pass all my problem to you, you will suffer more on my behalf. If your country is in trouble, your money devalued immediately. Look at the trend, US dollar will only go up but not come down. I am consuming nation you’re producing nation. You slave I master. Still don’t get it. Forget about whatever economy theory, it won’t work… Read more »


Anil, Can you explain to us how and where the money comes from? It puzzles me where they get those billions to pump into all these new mini budgets. Surely if they want to get RM35 billion or RM50 billion, they have to take from somewhere in the first place and won’t that tax on the economy as well? It is like a ‘seperti tikus membaiki labu’ or making bigger dents in trying to cover up holes.

Lim GL

Who cares about what US is doing? Let’s focus on the issue right here in Malaysia and not get distracted.