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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 March 2, 2010 at 5:49am

I couldn't agree with you more about the two parties. I really think the bulk of the differences are illusory and just about every election comes down to weighing the evils and trying to vote for the side that will probably fuck you over the least.

Clinton had a hostile congress, though. I honestly believe he tried to make the best of it by compromising on some fronts so he could pick his battles elsewhere. It's a tough job all around.

I think people sometimes give the successful presidents too much credit and the unpopular ones too much guff. They aren't kings after all. They have 2 other branches of government to contend with and the will of the citizenry is nothing to sneeze at.

One of the prices of living in a free society is that the responsibility falls on all of us when shit gets bad.

One thing I'll give the tea party movement is that they are at least trying to take some kind of civic responsibility for their country instead of expecting politicians to fix everything. It's for what I consider to be some of the most retarded reasons possible, but at least they aren't just sitting around and complaining. They are going out into public and complaining, which is as American as you can get.

Somewhere along the way most of the progressives forgot how to do that, it seems.

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Permalink Reply by Hillbilly on March 2, 2010 at 5:53am

"First, it should be pointed out that much of the banking deregulations that got us into this mess were passed under Clinton."

Oh goodness.

Senator Gramm, McCain's economic adviser, the man McCain called the smartest man in DC, led the banking deregulations in the 1990's.

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Permalink Reply by Van on March 2, 2010 at 7:21pm

True but Clinton could have vetoed it, and at least some Dems voted for it. Yes I'm afraid the Democrats were drinking the deregulation kool aid too.

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Permalink Reply by Charles Lane on February 26, 2010 at 6:48am

Never had the bumper sticker. You obviously do not watch Fox or listen to Rush because you would have heard the criticism from the conservatives. The wet dream come true would have been Gingrich and Cheney.

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Permalink Reply by Van on February 26, 2010 at 12:35pm

Ok show me the links or tapes of Fox or Limbaugh criticizing Bush. Everything is taped. Now I don't doubt that their was the very occasional mild criticism, but nothing like the constant loud criticism of liberals and Obama. Hell go to Daily Kos http://www.dailykos.com/ or many other liberal blogs and you'll find tons of criticism of Obama from the left. I will give conservatives credit, they fall into lockstep behind their leaders when they are in power.