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We find it hard to talk about China without talking about India. Sometimes, for the sake of economic comparison, we pit the two against each other. Other times we pit the two, often along with South American kindred spirit Brazil, against the developed economies of the West. india and China seemed to zag while the rest of the world zigged during the global economic crisis, and were able to grow while the US, China, and Europe stagnated. But as 2011 ends, the two growing powerhouse economies are showing some vulnerability. At Project Syndicate , Stephen Roach warns us not to carried away by concerns that China and India will struggle in the coming year. He is a little worried about India's ability to avert crisis. As for China, Roach says not to expect a "hard landing," as China's policymakers have taken necessary action to ward off any major downfall: That is particularly evident in Chinese officials’ successful campaign against inflation. Administrative measures in the agricultural sector, aimed at alleviating supply bottlenecks for pork, cooking oil, fresh vegetables, and fertilizer, have pushed food-price inflation lower. This is the main reason why the headline consumer inflation rate receded from 6.5% in July 2011 to 4.2% in November. Meanwhile, the People’s Bank of China, which hiked benchmark one-year lending rates five times in the 12 months ending this October, to 6.5%, now has plenty of scope for monetary easing should economic conditions deteriorate. The same is true with mandatory reserves in the banking sector, where the government has already pruned 50 basis points off the record 21.5% required-reserve ratio. Relatively small fiscal deficits – only around 2% of GDP in 2010 – leave China with an added dimension of policy flexibility should circumstances dictate. India, however, "is more problematic," Roach notes: India is more problematic. As the only economy in Asia with a current-account deficit, its external funding problems can hardly be taken lightly. Like China, India’s economic-growth momentum is ebbing. But unlike China, the downshift is more pronounced – GDP growth fell through the 7% threshold in the third calendar-year quarter of 2011, and annual industrial output actually fell by 5.1% in October. But the real problem is that, in contrast to China, Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India – which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem – can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9% of GDP limits India’s fiscal-policy discretion. Read Why India is Riskier than China here .

As part of the Nobel Prize festivities, award recipients Thomas Sargent and Christopher Sims gave their Nobel Prize lectures last week in Stockholm. Sargent's lecture was titled United States then, Europe now . Sims spoke on Statistical Modeling of Monetary Policy and its Effects . You can watch the lecture here. Thank you to the Institute for New Economic Thinking for the video (the lectures start 10 minutes in):

In the period before the global economic crisis of 2008, Nouriel Roubini was tagged "Dr. Doom" by many media outlets. The label was often dismissive, but it became more of a badge of honor after crisis hit. Roubini has remained vigilant about the vulnerability of the financial markets. His concern now is a global depression. In order to avoid depression, Roubini says there must me a multi-national approach. While austerity measures in many countries are necessary, he argues that other nations must postpone austerity in order to inject stimulus into the global economy. Writing at Project Syndicate , Roubini outlines several other steps: Second, while monetary policy has limited impact when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures. Third, to restore credit growth, eurozone banks and banking systems that are under-capitalized should be strengthened with public financing in a European Union-wide program. To avoid an additional credit crunch as banks deleverage, banks should be given some short-term forbearance on capital and liquidity requirements. Also, since the US and EU financial systems remain unlikely to provide credit to small and medium-size enterprises, direct government provision of credit to solvent but illiquid SMEs is essential. Fourth, large-scale liquidity provision for solvent governments is necessary to avoid a spike in spreads and loss of market access that would turn illiquidity into insolvency. Even with policy changes, it takes time for governments to restore their credibility. Until then, markets will keep pressure on sovereign spreads, making a self-fulfilling crisis likely. Agree or disagree with Roubini, by proposing specific steps, he does allow for a meaningful discussion. Two big questions raised by his proposals are 1) is a coordinated global policy possible in today's political climate, and 2) if so, then how might it come about? Read How to Prevent a Depression here .

We are seeing more signs today of a pending Greek default . While some folks just want resolution , European policymakers in Germany and elsewhere may be delaying the inevitable in part because they are not yet certain of what the ripple effect of default will be. Dow Jones columnist Alen Mattich discusses the uncertainty throughout Europe:

While those of us on the East Coast were watching the weather this weekend, top economists from around the globe were still at the Jackson Hole Economic Policy Symposium , listening to the new head of the IMF , Christine Lagarde give what Felix Salmon called "the most important speech of the meeting, by far." Lagarde gave her vision for what European and American leaders need to do to stave off a most damaging double-dip recession. From the speech: Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties. On the first, the idea was that strengthened private sector finances would allow the engine of growth to switch back from the public to the private sector. On the second, the idea was that higher demand in surplus countries would make up for a lower spending path in deficit countries. But the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing. Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed. Developments this summer have indicated that we are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed. So we must act now. It is a matter of vision, courage and timing. Decisive action will bolster the confidence that is required to restore and rebalance global growth. We are not without options. We know what needs to be done to support growth, reduce debt, and prevent further financial crises. But we need a new approach—based on bold political action, with a comprehensive plan across all policy levers, implemented in a coordinated global way. Read the speech here .

In an op-ed for the Financial Times , Nouriel Roubini calls S&P's decision to downgrade the US credit rating "misguided," and he worries that it is making an already dangerous economic situation worse. Between the US economy's inability to add jobs, and the economic stagnation and debt struggles in Europe, Roubini is expecting another global recession. And he fears that this one might be significantly worse than the last. So can we avoid another severe recession? It might simply be mission impossible. The best bet is for those countries that have not lost market access - the US, UK, Japan, and Germany - to introduce new short-term fiscal stimulus while committing to medium-term fiscal austerity. The US downgrade will hasten demands for fiscal reduction, but America in particular should commit to look for significant cuts in the medium term, not an immediate fiscal drag that will worsen growth and deficits. Most western central banks should also introduce further QE, even though its effect will be limited. The European Central Bank should not just stop rate hiking: it should cut rates to zero and make big purchases of government bonds to prevent Italy or Spain losing market access - the outcome of which would be a truly major crisis, requiring doubling (or tripling) of bail-out resources, or debt workouts and a eurozone break-up. Read Mission impossible: stop another recession here .

With the Fed's second round of quantitative easing expiring, and few signs of stable recovery, Brad DeLong , professor of economics at the University of California, Berkeley, and Jim Grant , of Grant's Interest Rate Observer, debate whether the Fed should initiate another round, QE3 . DeLong starts things off by arguing that more quantitative easing is what Milton Friedman would recommend. From the Wall Street Journal :

While all eyes and ears were on President Obama's speech on the economy in Ohio yesterday, the head of research for the San Francisco Fed gave his take on the economy in Salt Lake City. John C. Williams delivered a speech he titled "Sailing into Headwinds: The Uncertain Outlook for the U.S. Economy" to San Francisco and Salt Lake City Branch Boards of Directors. Williams told the audience that he is "confident we will find safe harbor," even as the pace of economic recovery is painfully slow. Economists like to be precise in their descriptions. In a talk a month ago I described the pace of growth as "moderate," bordering on modest. Well, since then, we've clearly moved well into modest territory. Yet, despite this loss of momentum, the recovery continues to tack forward, fighting stern headwinds. Why has the pace of economic recovery been so underwhelming? Real GDP grew about 3 percent over the past four quarters. This pales in comparison to the 7¾ percent growth seen in the first year of the recovery from the last very deep recession, the one that occurred in 1981 and 1982. It's more like the two most recent recoveries, the ones that occurred at the beginning of the 1990s and after the 2001 recession. These were far more muted, giving rise to the unhappy phrase "jobless recovery." Some of the recent weakness is surely due to temporary factors that will end. But, others are likely to endure. Economists have identified several major factors contributing to the weak recovery. Perhaps most notable is the fact that the recession followed the worst global financial crisis since the Great Depression. Research has clearly demonstrated that economic recoveries that come in the wake of banking and financial crises tend to be slow and painful. 1 This pattern reflects the critical role that credit plays in greasing the wheels of economic activity. Following a severe crisis, the process of rebuilding the health and confidence of borrowers and lenders alike is a long, drawn-out affair. Second, U.S. households are straining under mountains of debt accumulated during the housing boom and for years before. We had become a nation of borrowers, not savers, and we are now having to make painful adjustments. Consumers, normally reliable participants in recoveries, are standing on the sidelines. They feel compelled to repair their finances in lieu of cruising the auto showroom or shopping for 3-D TVs. Meanwhile, businesspeople have been left extraordinarily cautious and averse to all kinds of perceived risks, whether from the economy, financial markets, or government policies. On top of that, the construction boom of the mid-2000s created an enormous overhang of houses and other structures that will take years to work off. Finally, monetary policy has reached the limit of what it can do by conventional means. The Fed's benchmark policy interest rate is already effectively at zero, the lowest it can go. The Fed can't reduce short-term interest rates any more than it already has. That constrains Fed policy and has prompted us to turn to unconventional programs to stimulate the economy, such as buying mortgage securities in order to lower long-term interest rates. Read the full text of the speech here .