IMF boss kicks butt
The IMF has released parts 3 and 4 of its upcoming World Economic Outlook, while we have to wait for part 1 and 2.
Presumably, as with The Godfather, the later instalments are the better and so they have punted them now into the pdf-osphere to try and, once again, bounce the world's finance ministers at the IMF Spring Meeting to commit to sustained fiscal stimulus.
Why do they think it's needed? Well the rationale is summed up in the opening paragraph of Chapter 3, which I will summarise in bullet point form in non-financial English.
1. Recessions caused by financial crisis are unusually severe and long
2. Globally synchronised recessions are long and deep and the recoveries weak
3. Interest rate cuts and printing money can help but are limited when the main problem is financial
4. By contrast fiscal stimulus is "particularly effective"
5. However strike point 4 above if countries are already heavily indebted (NB Gordon Brown)
6. Therefore the current recession is likely to be "unusually long and severe and the recovery sluggish".
Now the politics. What Dominique Strauss-Kahn is trying to do here is bounce the US government, and one or two others, into sorting the banks out. On Newsnight tonight he was clear that the US banking bailout is not effective and it's clear the IMF is trying to lean on the US Treasury and Fed to achieve some kind of closure (watch the interview here).
Here in the USA, (I have been travelling around Indiana in an RV), the fiscal stimulus is facing a growing backlash, even from people who've benefited from it. The "tax tea parties" though small have been heavily covered by Fox News - and I mean like on the scale of a Cat 6 Hurricane. Many conservative Americans have the gut feeling that Obama's fiscal stimulus will impose a tax burden on their kids that will change America forever.
Strauss-Kahn took a coded sideswipe at the tax protesters, the Republicans and by implication the British Conservatives in his Newsnight interview: opposition parties he said are making hay out of the stimulus - but it happens. Under his leadership the IMF is turning out to be strangely dirigiste, doom-laden and prepared to kick the butt of sovereign governments and opposition politicians behind the scenes.
One thing I think we can predict with certainty is that, when the IMF publishes its growth projections next week, they will be even lower than the already thrice downgraded figures. If, as DS-K said, we're looking at a mid-2010 recovery, 2009 is looking pretty grim, and in jobs and closures and output we've not seen nearly the bottom yet.