Yellen Nomination Good News for Economy: Talvi

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Oct. 8 (Bloomberg) -- President Barack Obama is preparing to nominate Federal Reserve Vice Chairman Janet Yellen to head the U.S. central bank, according to two people familiar with the decision. Brookings Institution's Ernesto Talvi comments on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

For the economy and for the markets.

She has the academic credentials.

The experience.

I think she will continue with fed chairman bernanke's policies of providing adequate liquidity to the economy and avoiding a premature tapering.

In that sense, i think it is reassuring.

What is the u.s. central bank's role in setting the agenda, the pace for other central banks around the world, particularly during these economic times when some countries are still trying to find their financial footing?

The policies of the fed are really key from the point of view of the world economy.

I think that the provision of adequate liquid it he throughout the financial crisis prevented what would otherwise have been a great depression.

In that sense, i think that janet yellen's appointment is reassuring for the world economy.


talvi let's talk about the international monetary fund.

Today they have expressed some concerns about the global economy.

They also expressed concerns about what is going on in washington, the shutdown and of course the impending debt ceiling deadline which is october 17. if there is no deal to raise the debt ceiling in the united states, what is the global ripple effect?

If there is no deal to raise the debt ceiling, that means that the u.s. can only roll over existing debt but will not be able to issue new debt.

If you decide -- then you will have to decide whether to continue paying interest on existing debt or cut back or delay other spending items of the budget.

My impression, and i share this with my colleagues at brookings, that it is highly unlikely that the u.s. will choose to default on its interest payments and would rather probably delay other items on the spending agenda that will create the political dynamics necessary to break the gridlock.

As imf chief economist correct that failure to raise the debt ceiling could throw the u.s. economy into a recession or even worse?

If they choose not to default on the debt, then you would have to cut very severely other items in the budget.

That would create a very severe recession.

If you choose to default on your debt, on the other hand, even if the default is not self-imposed and fundamentally based on any inability of the u.s. government to pay its debt, it will open up a pandora's box.

It might create another lehman moment.

It could get ugly.

The government spending cuts and tax increases that took effect here in the u.s. earlier this year, will they be as much of a drag on the economy in 2014? there will be a small drag because they cover -- they affect less than 10% of the budget.

Should the government be forced to cut the spending due to the inability to issue new debt, than those cuts would have to be much more severe and would be a larger drag on the economy than the shutdown the we have had so far.

About 30 seconds left, the imf also expressing concern about how global policymakers will exit their monetary stimulus.

How much of a risk is winding down stimulus pose to emerging economies?

The winding down of stimulus will hit severely those emerging markets that are spending in excess of their income and relying on foreign financing in order to finance that excess.

They will potentially be forced into severe macroeconomic adjustment.

We saw that with the falling currency values and asset prices

This text has been automatically generated. It may not be 100% accurate.


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