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Cutting deficit before 2011 may lead to double-dip recession, IMF w...
The rich world should hold off from slashing budget deficits and exiting radical monetary policy for another year, the International Monetary Fund has warned.
Based on January 2010 IMF World Economic Outlook projections, which include some fiscal tightening starting in 2010 in emerging market economies and 2011 for advanced economies.
In a paper, which will be characterised as a blow for the Conservative party, the Fund said that countries risked sparking a potential double-dip in their economies if they start cutting spending and raising taxes too early.
It also warned that public debt levels throughout the world had now reached similar levels, in comparison to gross domestic product, as in the 1950s, the aftermath of World War II.
The special IMF paper, on exit strategies from the radical policies carried out by stricken advanced economies, emphasises that governments and reguators should be careful not to start tightening either monetary or fiscal policy too early.
Although the paper does not mention the UK specifically, the warning comes only days after 60 economists warned in a duo of letters that Conservative plans to start slashing the deficit from day one of their prospective government could derail the recovery.
The paper, by IMF chief economist Olivier Blanchard, said: "Notwithstanding the recent pick-up in growth momentum, there is little evidence as yet that private demand is self-sustaining.
"Hence, fiscal and monetary stimulus may need to be maintained well into 2010, although if developments proceed as expected, withdrawal could begin in 2011."
The warning came amid growing concern about the prospects of a relapse into economic weakness, with the pound dropping at one stage by more than a cent against the dollar, and markets on both sides of the Altantic sagging.
It chimed, too, with a hint from Bank of England Governor Mervyn King that the Bank may have to countenance further quantitative easing in the coming months if economic conditions deteriorate.
In the US, the Conference Board shocked markets with a sudden plunge in its consumer confidence index to a 10-month low, with households expressing particular concern for their jobs. Former Federal Reserve Chairman Alan Greenspan said that the financial system had undergone "by far the greatest financial crisis globally ever."
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Permalink Reply by Action Jeans on -
I didn't really pay attention to what he was saying but watching that video was time well spent. He's an amazing specimen. The beard/hat combo is hypnotic. Somehow, his accent makes it even better.
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Permalink Reply by Friar Tuck on -
Nick does like to wear that odd hat. He is one of the best financial reporters on YouTube. His channel TheModernMystic is very popular with the financial crowd. He has an especially good talent for breaking down economic theory into digestible bits that most folk can understand, but not too simplistic.
Being of Welsh / English / Irish descent and partially raised by a Grandmother from Norwich UK, his accent seems quite commonplace to me.
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Permalink Reply by Hillbilly on -
I can't see central banks taking money out of the system until it's obvious to all that we are in an inflationary state. They simply aren't politically powerful enough to take the blame for a recession before there is concrete data.
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Permalink Reply by Van on -
So if it doesn't work doesn't work were up shits creek, but if we don't do it were up shits creek. It worked at the end of the great depression with the deficit spending of WW2 and it's aftermath, and it worked for Ronald Reagan with his huge increase in spending on the military. Of course if we hadn't given tax cuts to the rich under GW Bush and blown a trillion dollars on an unnecessary war and taken away the reasonable regulations on the banks and wall street, we wouldn't be in this mess. The conservative answer is cut taxes, but we did that under Bush and all we got was a stagnant economy. Of course the teabaggers think we should just go back to the gold standard and that will solve all our problems.
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Permalink Reply by Hillbilly on
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I don't think anybody's got an answer. The libs want to believe that they can F with the economy in juuuuuuust the right way. Nah. I think, they'll screw it up just because they can't act until the data is really, really clear and then will be too late to stop inflation.
The difference with WWII is, I think, that in WWII there was confidence about what we were doing and when it would stop. There was certainty. Today, they is a lot of uncertainty about what tomorrow's policy will be. Do You know what it will be? I don't. I don't think the Treasury or the Fed knows. That makes everyone just sit back and wait. A recovery, a change, kills the recovery because that means the Fed will end it's support.
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Permalink Reply by Charles Lane on -
Van this conservative TEA Partier thinks we are in heap big do-do. We are owned by China, Japan, and the Arabs. They hold enough of our money to buy ALL the stock of ALL publicly traded companies. I have said it before and I will say it again Bush was not a conservative. He threw out a few bones here and there. He was a "compassionate" conservative. Since Bush's father was in office nothing has changed. You cannot tell the difference between either side. It is status quo. We have Paul. You have Sanders. We have McCain and you have/had Lieberman. What has Obama delivered on? Where is the change from Bush?
Just try and imagine what America would be like if we had to live on a balanced check book, you might like it. It would sure as hell be hard to fund a war, huh? We could reduce the size of our military and just withdraw all troops from all bases around the world. Of course Social Security and Medicare are going to be a bitch but you gotta have some skin in the game right? And old people are wrinkly and have lots of skin so that should not be a problem at all. Right Fang?
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Permalink Reply by Van on
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Oh, right, Bush2 wasn't a conservative. Then tell me this, where was all the conservative criticism while he was president? Where were the Tea Party protests? Why wasn't Fox News and Limbaugh criticizing him every day. Oh sure maybe a trickle after 2006, but lets face it Bush-Cheney was the rights wet dream come true. Now, like Judas, you turn on them. It's a bitch getting those bumper stickers off, isn't it?
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Permalink Reply by Van on
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As for a balanced budget with no debt, thats great but now is not the time. If you cut government spending you put more people out of work. Thats less people to buy things and less consumer spending makes businesses cut back and you have more people out of work. Also you have less tax dollars coming in so you still can't pay off the debt. Meanwhile the people who still have jobs are terrified of losing them so they hold onto their money and more people get laid off. That's the modern capitalist economy, like it or not. Personally I would prefer something more sustainable, like maybe some of the European economies( although they've gotten into trouble too by letting their banks play in the big craps game) most of which are doing somewhat better than ours. In the meantime, you stimulate now, raise taxes later.
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Permalink Reply by Hillbilly on
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"In the meantime, you stimulate now, raise taxes later."
I know it's hard to believe after the success of the Bush team managing the economy and how Obama came in and passed a stimulus that has done a great job but ends quickly, passed financial reform legislation to the point that we don't worry about the banks any more (and won the Nobel prize in economics to boot) then got a health care plan through congress that was so good, even some Republicans went along just to get some of the credit. All of that and yet I remain just a weeeee bit cynical about our politicians, from both parties, to make the right decisions at the right times.
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Permalink Reply by Kooch on -
First, it should be pointed out that much of the banking deregulations that got us into this mess were passed under Clinton. Plus, we had Al Gore stumping at union halls telling working people that NAFTA and globalization would turn out great for all of them.
Sure, Bush fucked us up royally, but giving a pass to the Dems is just being tribalist. The Left and Right are legs of the same beast. Look at how Obama's surrounded by former Goldman guys and the like.
I would love to see a real stimulus--mainly in rebuilding our infrastructure. But there are two things that would require (neither of which the Dems are going to do): 1. De-militarize and let go of our empirical desires. and 2. Nationalize the Federal Reserve.
We don't need a gold standard (in fact, history shows the folly of that system). We need the creation of money and the control of that quantity in the hands of the government. Instead of issuing T-Bills and other IOUs whenever the government runs out of cash, they should just create it out of thin air like the Fed does. The way we do it now is a scam in which we pay interest on money the government has the authority to make without debt. Taxes would only need to be ever raised to pull money out of the system to offset inflation.
A prosperous nation with a government creating its own debt-free money could afford any stimulus it needed along with things like single-payer healthcare.
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